Ivey finance professors Steve Foerster and Ale Previtero jumped to the top of the class recently, winning the 2015 Canadian Investment Research Award presented by the CFA Society Toronto and Hillsdale Investment Management. Their award-winning paper, "Retail Financial Advice: Does One Size Fit All?," was selected by a panel of judges among a dozen other papers submitted by academics from top flight business schools around the world as well as from leading firm practitioners from across Canada. Foerster and Previtero co-authored the piece with Juhani Linnainmaa (Chicago, Booth) and Brian Melzer (Northwestern, Kellogg).
“The genesis of the paper came from a mutual fund industry consultant who asked, ‘What would it take to get more academic research in the area of financial advice?’ We simply replied, ‘Access to data.’ So after a long process the consultant was able to help us secure data from some mutual fund firms that were interested in improving their best practices,” said Foerster. “We were able to create a rich database of Canadian advisers and their clients, and to compare some of the benefits and costs of financial advice.”
Conclusions from the paper’s abstract note: “Using unique data on Canadian households, we assess the impact of financial advisers on their clients’ portfolios. We find that advisers induce their clients to take more risk, thereby raising expected returns. On the other hand, we find limited evidence of customization: advisers direct clients into similar portfolios independent of their clients’ risk preferences and stage in the life cycle.”
“There is no doubt that advisers continue to play an influential role in providing investors with much needed financial advice and guidance. A careful reading of this fine paper indicates that there are excellent advisers that do indeed generate alpha for their clients while helping them understand the need to take additional risk in order to earn additional returns,” said Chris Guthrie, CFA, President and CEO, Hillsdale Investment Management Inc.
Foerster, Previtero, and their co-authors received a $10,000-cash prize for the award. The research finding from this paper has also been featured in prominent articles in both the Wall Street Journal and Globe and Mail.
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