Abstract/Summary

This research contributes to the understanding of the value of financial advice to households in Canada by differentiating the market for financial advice into 18 specific channels and applying both portfolio centric as well as non-portfolio centric measures of value. Controls for the receipt of financial planning and endogenous factors that impact household financial outcomes are also applied. The results of this study suggest that the value of financial advice for households depends on the type of advice channel used and the financial outcomes being measured. Traditional financial advice channels, which offer advice alongside investment execution, are effective in improving household financial outcomes for wealthier households when using a portfolio-based measure of value, but there is little evidence of value for traditional financial advice channels targeting the mass market. However, when considering traditional financial advice channels for average Canadian households, the receipt of financial planning was found to have a significant and positive impact across a multi-dimensional framework. Additionally, the results showed that DIY investors (those who opt for a "do it yourself" approach to investing) were associated with higher levels of investable assets compared to the reference group, which comprised those who used the ‘no advice’ condition. The ‘no advice’ reference group were respondents who identified a bank teller as their primary channel of advice, controlled for demographic differences, and duration of use of primary channel of advice. This suggests that the idea of a simple dichotomy between financially advised households and DIY investors may be too simple of a framework for determining the value of financial advice, and that overall, heterogeneity of households plays an important role in the determination of value, especially when accounting for endogenous factors. By considering these results against a differentiated framework for the market for financial advice (considering the inter- and intra-channel differences in the market for financial advice) and using three separate outcome measures for households, this research makes several contributions to the existing literature on the value of financial advice to households, particularly regarding the importance of financial planning and the interaction effect between financial planning and the type of advice channel utilized. To assess the efficacy of financial advice, three different outcome measures were studied: current Investable Assets, a Holistic Wealth Score, and Comprehensive Financial Confidence. The first measure is focused on Investable Asset levels, while the latter two are non-portfolio centric measures. The Holistic Wealth Score is a measure of the breadth of financial advice received, while Comprehensive Financial Confidence captures an intangible benefit of financial advice. These non-portfolio centric measures also align with emerging industry service offerings in the market for contemporary financial advice, as portfolio management becomes more commoditized.