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Wealthy investors and financial advisors perceptual variations, portfolio recommendations and gender differences

Baeckström, Y. (2018). Wealthy investors and financial advisors perceptual variations, portfolio recommendations and gender differences. (Unpublished Doctoral thesis, City, University of London)


This thesis explores financial advice to wealthy investors in the UK. The multidisciplinary research spans finance and psychology and contributes to the literature about financial advice by exploring social cognition and how it is formed. This is achieved in three studies which investigate the perceptual social judgements that financial advisors make about the investment needs of individuals who are millionaires, as well as the perceptual self-judgements that wealthy investors make of themselves.

To date little attention has been paid to how social cognitive judgements can influence how financial advisors interpret and respond to the needs of millionaire investors, and if this varies depending on the gender of the investor. This research, therefore, investigates whether experienced professional financial advisors who work with millionaire investors make different assumptions regarding the control and knowledge that investors have of their investments, and if they vary their investment portfolio recommendations to equivalent male and female investors. A gender bias is identified which sees advisors perceiving female investors as having less control of their investments.

Further analyses explore how the personal attributes of both the investors and the financial advisors relate to the perceptual judgements that advisors make of the millionaires. Findings show that financial advisors make reasonable social cognitive judgements about the information that they are presented with which describe the investors. However, advisors are also seen to draw on their own personal characteristics when making portfolio recommendations and unmeasured advisor attributes are found to be as influential as investor characteristics. These findings challenge the expectations that, in accordance with metrics and regulatory assumptions, advisors base their recommendations on the risk tolerance of each individual investor to which only the characteristics of investors contribute. The findings have important practical implications for the financial regulator, the wealth management industry, and for investors to consider when choosing advisors. This analysis is made possible by using vignette methodology where millionaire investors are described in pen portraits. The method then controls for investor gender, thus allowing for the impact of investor and advisor characteristics to be isolated. With a long history in social psychology, the vignette methodology is introduced to the field of finance in this thesis.

Finally, using a sample of wealthy UK individual investors the thesis examines self-perceived investment confidence, knowledge and risk tolerance among men and women, who either rely on financial advisors or self-manage their investments. Although the results illustrate that women perceive themselves to be less risk tolerant than men, gender differences showing lower confidence and knowledge among female relative to male investors are not replicated. Moreover, investors who have financial advisors are more risk tolerant than those who self-manage. Furthermore, the group of women who have female financial advisors is identified as having a higher risk tolerance than is the case for men. These findings suggest that more attention should be paid to interactions between financial advisors and investors in order to identify and explain potential sources of bias in the wealth management industry.

The research presented in this thesis makes important contributions to the finance literature by examining the interactions between financial advisors and wealthy investors. Its findings and the methodology utilised can furthermore be replicated by future researchers to deepen the knowledge of social cognition, how it is formed and how it impacts on financial advice to individual investors.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School
Bayes Business School > Finance
Doctoral Theses
Bayes Business School > Bayes Business School Doctoral Theses
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