The Impact of Financial Advice on Retirement Planning and Outcomes

We study retirement savings decisions and outcomes in Oregon University System’s Optional Retirement Plan (ORP). During our sample period, 32% of ORP participants choose to invest through HIGH, which markets itself as providing personal face-to-face financial service. The other participants choose to invest through three lower-service providers, with 51% investing through LOW. Consistent with lower levels of financial literacy driving demand for financial advisors, we find that younger, less highly educated, and less highly paid employees are more likely to invest through HIGH. When we compare the investment strategies and performance of HIGH and LOW investors, several differences emerge. Consistent with financial advisors impacting asset allocation, HIGH investors allocate their retirement contributions across a larger number of investments, are less likely to remain fully invested in the default investment option, and less likely to change their equity allocation during the recent financial crisis. On the other hand, HIGH investors' portfolios are significantly riskier, and underperform by approximately 2 percent per year on a risk-adjusted basis. Although we cannot conclude that those investing through a financial advisor would have been better off investing on their own, we can conclude that access to financial advisors is a costly and imperfect substitute for financial literacy.