Research Affiliates examines why financial advisors often steer investors toward costly, underperforming strategies, arguing the root cause is misguided beliefs rather than conflicts of interest. The paper shows advisors invest similarly to clients and still generate about -3% alpha, challenging assumptions about professional advantage.
The Misguided Beliefs of Financial Advisors
Research Affiliates
Research
41 Pages
Key Takeaways
Advisors Mirror Clients: Advisors and clients both earn roughly -3% annual alpha, with performance differences typically within ±0.16%, indicating no consistent skill advantage from professional management.
High Fee Drag Impact: Investors incur 1.5%–2.5% annual fees, which compounds into a 15%–25% reduction in total wealth over a 30-year investment horizon.
Behavioral Bias Persistence: Advisors’ trading behavior correlates 0.12 to 0.31 with clients, and these patterns persist even after advisors exit the industry.
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