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- Investors and investment choices: determinants of the financial advisors persuading the investors and the role played by financial advisors on the decisions of the investors
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- International Journal of Management (IJM)
Volume 9, Issue 6, November–December 2018, pp. 34–53, Article ID: IJM_09_06_004
Available online at
http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=9&IType=6
Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
© IAEME Publication
INVESTORS AND INVESTMENT CHOICES:
DETERMINANTS OF THE FINANCIAL
ADVISORS PERSUADING THE INVESTORS
AND THE ROLE PLAYED BY FINANCIAL
ADVISORS ON THE DECISIONS OF THE
INVESTORS
S Veena
Hindustan Institute of Technology and Science (Deemed to be University), India
ABSTRACT
There are many number of investment avenues with simple choices like
investments in banks deposits to complex investment avenues like investing in share
markets and others. The investor gets confused and sometimes misled with vast
amount of information available. In such a case, the investor may require a support
while searching for the information, evaluating the alternatives and finally deciding
the investment avenues. This support may be available from personal sources like
family members, friends or peers or from intermediaries like financial advisors. This
study makes an attempt to understand the support extended by financial advisors
through reviewing the various scholarly articles on financial advisors.
Key words: Financial advisors, personal characteristics, information search,
evaluation of alternatives, decision making, impact.
Cite this Article: S Veena, Investors and Investment Choices: Determinants of the
Financial Advisors Persuading the Investors and the Role Played by Financial
Advisors on the Decisions of the Investors. International Journal of Management,
9 (6), 2018, pp. 34–53.
http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=6
1. INTRODUCTION
The objective of the article is to identify and understand the characteristics of a Financial
Advisor necessary to initiate a communication and the role played by the advisor in various
stages from information search, to evaluation of alternatives, to decision making from among
the alternatives and impact created by advisors in the minds of the investors.
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- S Veena
Methodology
The study is solely based on reviewing the various scholarly articles on financial advisors on
personal characteristics of the advisor, the role played by the advisors in information search,
evaluation of alternatives, decision making and their impact on the behavior of the investors‟
decisions.
Findings
The study, by reviewing various articles and from the research findings of various researchers,
has found out that the services of advisors would surely benefit the investors to a large extent,
helping them to make an optimal investment decision. The study also found out that the
investors with more income tend to utilize the services of financial advisors than with less
income investors.
Future Research
The study can be taken as a prelude for investors for utilizing the services of the advisors and
advantage that can be reaped. In future for the financial stability, the investors have to
necessarily seek the support of advisors.
2. LITERATURE REVIEW
Introduction
There has been a phenomenal change in the financial services sector and has led to a
development of large number of financial institutions coming out with large number of
investment products in savings, insurance, mutual funds, equities and commodities. At
present, the Indian economy is fast growing with high disposable income, and so has high
saving potential. The rapidly changing financial structure and its market with complexities
makes an individual investor, with such a high disposable income, confused and sometimes
even worrying as to choice of an investment, the amount of the investment and to gain
maximum profits out of such investments. Also the investor gets baffled with the choices as
he lacks the knowledge, skill and the time to spend for researching the avenues. Chater et
al.(2010), have informed in their paper, that consumers clearly struggle with understanding
investments, with very few able to identify the investments which would meet their
requirements or give them a best return.
Objective
The objective of the article is to identify and understand the characteristics of a Financial
Advisor necessary to initiate a communication and the role played by the advisor in various
stages from information search, to evaluation of alternatives, to decision making from among
the alternatives and impact created by advisors in the minds of the investors.
Methodology
The study is solely based on reviewing the various scholarly articles on financial advisors on
personal characteristics of the advisor, the role played by the advisors in information search,
evaluation of alternatives, decision making and their impact on the behavior of the investors‟
decisions.
Financial Advisors
Lowings and Thomas (2008), in their research conducted for FSA, found out that the
consumers did not consider themselves to be confident and their experience is limited to one
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- Investors and Investment Choices: Determinants of the Financial Advisors Persuading the Investors
and the Role Played by Financial Advisors on the Decisions of the Investors
off purchase. In such a situation, the investor has to depend on someone to make his choice
the most optimal one. Financial Services Consumer Panel (2008); In addition the increase in
income and wealth of some people adds to the need for more financial advice. Senthil
Mullainathan (2012), in his article, says that a variety of forces, from social interactions with
friends and family to advertising and media, can influence their choices. In a survey of retail
investors, Hung et. al. (2008) found that 73% of all individuals surveyed consult a financial
advisor before purchasing shares or mutual funds. Howcroft et al., (2003): Faced with a wide
range of product choices, research has indicated that investors seek to manage their
investments through the use of financial advisors. Lack of financial awareness, limited or no
access to financial information, their intricacy and the lawful and contracting requirements
makes an investor to approach the financial advisor for professional advice. Chater et al.,
(2010), in their research, have clearly indicated that financial advisors play sales and
execution roles, as well as their primary role of providing information and advice. Studies of
financial behaviour have concluded that financial education, counseling and advice might
help individuals engage in financial practices that support longer term financial security.
Various other studies have also iterated that advice of financial advisors improves investors‟
cognition and enhances the financial capability of the investors.(Collins, 2012).
Financial advisors, as the name suggests, take up the role of helping the investors in
analyzing the various investment avenues, educating them on pros and cons of various
investment avenues, helping them in making important financial decisions, realizing their
goals and dreams, meeting their obligations and finally achieving a peace of mind. The
financial advisor makes a detailed assessment of the investors‟ financial position based on
their goals and aspirations. They make recommendations by assessing and comparing the
range of products generally representing the whole market. The potential benefit of engaging
financial advisors is ultimately to increase the wealth, protect it from inflation and have a
smooth consumption. As such the financial advisors in this study refer to independent
advisors, and advisors with advisory firms. Senthil Mullainathan et al .,(2012) also feel that
that the investment market knows very little about the financial advisors, though their
presence is required for investment advice. Lowings et al.,(2008), in their report submitted to
FSA, has indicated that investors perceive financial advisors as professionally qualified, has
attained higher education, and has the knowledge to deal with large sums of money and so
there are quite trustworthy and professional. They continue to iterate that the consumers
choose their financial advisor based on their initial feelings about the advisor in terms of their
personality and approachability. The consumers tend to remain with the financial advisor, if
they feel that the advisor is right for them. The consumers regarded the advisor in the main
role when large sum of money is involved. Chalmers and Reuter (2011), are of the view that
as investors derive utility from the one-on-one relationship and their lower levels of financial
literacy make them value financial advisors. The opaque and inconsistent terminology in the
industry is however largely incomprehensible to the layman, and technical terms may mean
different things from different providers or different terms may describe the same feature
(Sandler, 2002). Martenson (2007) preferred consumers to turn to their financial adviser or
contact person for help to make better decisions. Angelova & Regner (2012), commence
their paper with the comment that, for most of the consumers the market for financial
products appear like a jungle. Hence, advice is required by the consumers and they turn to
expert intermediaries who provide advice of financial products. Vera Popova, (2010), in her
paper, initiates that a client hires an advisor and hopes to receive truthful advice. In a research
conducted among the German investors, it was found out that 80% of them consult a financial
advisor. In Europe, a vast majority of respondents have said that they trust the advisors and
their advice. Investors in Romania, the Chezh Republic and France are most likely to consult
a financial advisor. (Chater et al., 2010).
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Hilgert et al,(2003), in their paper, had confirmed that individuals have a preference for
television, radio, magazines and newspaper. Duflo & Saez 2002, found that individuals rely
on financial advice from friends and colleagues for making saving decisions. Vera Popova
(2010), in her paper initiates that in the financial market context, a client hires an advisor and
hopes to receive truthful advice. Many studies have concluded that the basic reason
individuals hired a financial advisor was that these professionals were more knowledgeable
than the client. Akerlof and Shiller (2009) go the extent of saying that the uninformed
financial decisions by investors were the reason for global financial crisis in 2008.
Montmarquette and Viennot (2012), in their paper, have found that advice improves the
investment process in each of the identified phases of decision making. In their research, they
have concluded that the investors who have had a financial advisor for almost 58% more
financial assets than those who do not have a financial advisor. They have also observed the
public opinion surveys commissioned by the financial services industry that those who seek
advice are those who are financially better off. The financial advisor is said to use CRM in
understanding and influencing consumer behaviour through meaningful communications in
order to improve customer acquisition, customer loyalty, and customer profitability. (Swift
2001).In a special report in the website, www.ssgafunds.com, it has been reported that an
investor generally seeks an advisor who is experienced and knowledgeable, one who can help
the investor make, or single handedly make on the investors‟ behalf, difficult financial and
personal decisions. Mckenna et al.,(2003) had quoted the words of Mary Rowland in
National Association of Personal Advisors meeting held on 1999, that the primary role of a
financial planner is to help clients overcome their personal dysfunctions and lead better and
more rewarding lives.
3. PERSONAL CHARACTERISTICS:
Personal characteristics play an enormous role in determining which of the market players
prevail. (Axel et al, 2010). Rajaobelina et al.,(2009), in their paper, Customer orientation is
being developed by the financial advisors and they are pretty sure that this is the indicator for
buyer-seller relationship. It is personality variable that the financial advisor reflects this
character while meeting the investors disposition
Communication
Jaffe et al, (2011), in their white paper, have iterated that, to draw relevant factual and
emotional information from the client and knowing how to handle it adeptly requires good
communication skills in every interaction. Listening truly to the clients, interviewing
effectively to make the client feel understood, managing the delicate issues that money can
evoke, are the potentials required for the most successful advisors. Jaffe et al.,(2011), in their
article, have described the five key generalist skills that form the foundation for good
interviewing and communication. a. good interviewing (conversation) with a client is a
process of discovery, with surprises and layers of experience. b. ability to speak directly and
honestly, to listen well in situations of stress or conflict, and to handle those crucial
conservations that need to occur. c. explaining the investment avenues in understandable
English to make the client educated and sends the message that “this is about you, the client –
your involvement, your understanding, and your comfort” d. passive listening is essential as
to understand what the client is talking about, receiving the client‟s words and feelings with
the eyes and ears of the great listener. e. advisors should be aware of their feelings whether
nervous, angry, confused or under attack and possess the skill to monitor themselves as these
reactions emerge and then to not let their feelings influence what they do. An important aspect
of being a financial advisor is that he understands the customers‟ needs, expectations and
concerns. McKenna (1995), in his article, talks about communication, where in the financial
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- Investors and Investment Choices: Determinants of the Financial Advisors Persuading the Investors
and the Role Played by Financial Advisors on the Decisions of the Investors
advisors initiate the dialogue by opening themselves to investors and also sustains it by
involving investors as partners for further process. While financial advisors communicate
with the investors, their tone of voice, friendliness and empathy can be experienced by the
investors. The role of a financial advisor in communication is that of a „harmonizer‟, who
brings harmony in the investments decisions of the investor. (Rogers et al., 1976).
The more the financial advisor communicates with the investors, their thoughts and
behaviours can be reinforced or preferably improved while deciding about the investments.
Croson (www.ssgafunds.com), in the special report, have insisted that the investors value that
communication which the financial advisor can tell them just enough about the subject.
Chater et al., (2010), in their research, have recommended that communication between
advisor and investor is effective, even for simple investment decisions, thereby increasing the
propensity of investors to follow recommendations.
Trust
Trust is the main component in the sustainable context. The literature has suggested that the
trust as one of the main components which play an important role in influencing the investors
to have business with the advisors. Kenneth Arrow,(1972), in his book, gave expressed trust
as follows: “Virtually every commercial transaction has within itself an element of trust,
certainly any transaction conducted over a period of time.” Sapienza and Zingales call Trust,
“as an asset, is crucial to the development of any nation. Without trust, cooperation breaks
down, financing breaks down and investment stops”. Notions of trust and trustworthiness can
be said to be important measures of the value of financial advisor. (Montmarquette et al
2012).Monti et al.,(2014), in their paper, has defined trust as “responsive behaviour‟,
indicating relational factors that define interpersonal relationships. In their research, they
asked their respondents to identify the factors that are instrumental in trusting the advisor and
the responses included the technical competency of the advisor, communication traits and
accessibility and overall environment of his work space.
Trust is a complex state that comes about because individuals do not know what the
motives and intentions of others are (Kramer, 1999). Riegelsberger et al (2003): Trust has
been described as a device to reduce complexity, a shortcut to avoid complex decision-
making processes when facing decisions that carry risk. Beckett (2000), has quoted thus: the
research reveals that in many instances trust is a personalized characteristic whereby
relationship is maintained between a reliable advisor and the investor. The Special report in
the www.ssgafunds.com has quoted the words of famous psychologist Dr. James Grubman
relating to trust thus: “If I tell you personal things about myself or my family, I need to trust
you, the advisor, the advisor will handle well”. Chater et al., (2010), have reported that the
investors completely trust the advisor and do not perceive the advisor to be biased. They have
also reported that the advisor manages the investors‟ emotions and thereby affects investors
willingness to trust. Advisors are positive, increasing their willingness to help the investors, to
cooperate and makes the other party to trust in negotiations. In a European Survey, it has been
concluded that the less educated households had trust financial advisors to decide on buying
stock or other risky and more sensitive collective investment products. (Georgarakos and
Inderst , 2010)
Gambetta, Diego (2000) define Trust: “When we say we trust someone or that someone is
trustworthy, we implicitly mean that the probability that he will perform an action that is
beneficial or at least not detrimental to us is high enough for us to consider engaging in some
form of cooperation with him”. They continue to iterate the definition of trust that the others
intention is not to cheat us but in their knowledge and skill to perform adequately over and
above their intentions. The investors‟ ignorance or uncertainty about the investment
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alternatives becomes central to the notion of trust on financial advisors. Robinson (1996)
defined trust as a person‟s “expectations, assumptions, or beliefs about the likelihood that
another‟s future actions will be beneficial, favorable, or at least not detrimental to one‟s
interests” (p. 576). Investors trust their advisor to provide advice that benefits the client first.
This trust has been developed by the financial advisors by „putting the clients‟ best interest
first‟. (The Brondesbury Group). In their experiment, Carlander and Johansson (2015) found
that there is a positive association between trust and the likelihood of using an advisor to
make investments. Warnick et al., (2016), had established that while the components of trust
index was split and run, trust in financial advisor dominated in explaining investor behaviour.
Trusting became necessary when the additional planning required for future savings and
emergency fund. Chater et al,(2010), had confirmed that the investors tend to mostly or
completely trust the information or advice given by the financial advisors.
Knowledge
As a financial advisor, one of the most important aspects is to master theoretical and practical
knowledge in the broad range of investment alternatives and its implications. On mastering
the knowledge, this has to be combined with professional skills and abilities to deliver the
results effectively. Hanna et al(2010),: there are a large number of detailed areas of
knowledge for financial planners so more detailed categories of advice could be identified.
Financial Planning Standards Board has defined the knowledge framework into: 1. Financial
Planning Principles, Process and Skills 2. Financial Management 3. Tax Principles and
Optimization 4. Investment Planning /Asset Management 5. Risk Management and Insurance
Planning 6. Retirement Planning 7. Estate Planning and Wealth transfer 8. Integrated
Financial Planning. Crossby et al., (1990) specified that a “salesperson‟s expertise reflects the
identification of relevant competencies associated with the goods or service transaction”.
Chang (2005): In matters such as personal finance, in which people lack information or
expertise, professional advice is sought after – particularly as the degree of complication or
the need for specialized knowledge increases. Peter Dunn in his blog has written: The first
quality of a financial advisor should probably be “humility paired with knowledge”, a high
level of specific knowledge (IngaL-Lill Soderberg, 2012). The financial advisor should be
able to give the investors‟ confidence via their vulnerability. In an article in
www.motilaloswalmf.com, the financial advisor has been compared with that of a teacher:
“Be it a teacher or financial advisors, both of them are entrusted with a major responsibility of
imparting knowledge so the objective of both the concerned parties is achieved. While a
teacher is entrusted with teaching a subject(s) with set syllabus with his/her students, a
financial advisor is delegated the responsibility of imparting financial knowledge through
various investment”.
Axel et al (2010), in their white paper, have commented about the selection of financial
advisors by the investors. They have suggested a framework, wherein knowledge of
Investors‟ goals and Objectives and Knowledge of financial markets form the two important
components of the framework. Investors differ in their goals and objectives, so to provide an
optimal investment solution for a given investor, the financial advisor must have an intimate
understanding of that investors‟ unique circumstances. A quality communication between the
investor and the financial advisor helps to find out the risk tolerance, meaning how much risk
the investor is able to take and also how much risk the investor is comfortable taking.
Knowledge on the investment markets allows a financial advisor to provide intelligent,
appropriate investment options for investors. Anderson and Weitz (1989) spoke about
competence and operationalised the term in many ways: one such operationalization is the
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- Investors and Investment Choices: Determinants of the Financial Advisors Persuading the Investors
and the Role Played by Financial Advisors on the Decisions of the Investors
financial advisor‟s knowledge about the market for the investor and the ability to provide
effective sales promotion materials.
Quality of Service
Superior Customer Service is important first and foremost because it helps generate customer
loyalty – a bankable advantage, even in surprisingly small doses.(The Empathy Engine).
FCA, in their fact sheet to the financial advisors, has given comprehensive areas where the
financial advisors should provide quality services. These include: a) advice on the
alternatives given and informing them about the risk factors involved in those alternatives, b).
information on customer needs and objectives, attitude to risk, affordability, tax status and
entitlement to state benefits, c). whether the customers‟ attitude towards the risk has been
explored including the product risks as well as the circumstances in which these risks might
occur, d). responsibility of informing the investor about the suitability of the investments, e).
considering whether the services provided to the investor even if the investors‟ circumstances
change. The services also include whether all the relevant information has been captured
before making any recommendations, whether the recommended investment match the
customer‟s risk taking ability, recommending the most appropriate product, and providing the
level of service committed in the initial document. It has been researched that that there is a
need for empathy in the financial advisors approach - an approach which can sense customers
and respond to customers‟ issue – only those financial advisors who embrace, in their values
and practices an ethos of empathy, realize customer service as a sustainable competitive
advantage.(The Empathy Engine). Davidow et al., (1991), in their paper in HBR, has spoken
about developing a strategy for investor service by the financial advisor and providing an
optimal level of service for each investor set. Providing an optimal level of service helps the
investor to make his/her decisions appropriately. The services of the financial advisor take the
dimension of strategic orientation by providing good quality services and focusing on long-
range growth of the investor as well as the financial advisor. While servicing the mature
customers, it becomes imperative for financial advisors in case of an elderly investor.
(Kennett et al.,1995).
Transparency
Jack Waymire (2012), a financial advisor and founder of investorwatchdog.com, has insisted
Transparency in all aspects of transactions a financial advisor is expected to have, so that he
can stand apart from other advisors and win more business. He continues to iterate that a
value can be created by introducing and practicing transparency. According to him, there are
five important points that have to be adhered for transparency. 1).Ethical advisors do not
withhold information from investors.2).Transparency provides the facts the investors need to
select the advisor with the best qualifications, not the sales pitch.3). Transparency focuses on
Credentials, Ethics, Business Practices, and Wealth Management Services.4). Investors
should trust what they see and not what they hear.5).Their selection of a financial advisor is
far too important to base it on verbal information. Increasing the level of transparency will
help the advisors to improve their long lasting and satisfying relationships with the investors.
(www.ssgafunds.com)
Axel et al (2010), in their article, say that the investors should be treated as financial
advisors would treat themselves and disclose the information necessary to understand the
investment process. A detailed list of investments sorted by type, the fees to be paid,
performance vs relevant benchmark should be given as a report to the investors. Advisors
must show the ability and willingness to explain and justify their portfolio management
practices. Jack Waymire (2012), in another article, defines transparency by financial advisors
in three parts:1). Advisors practising transparency tend to provide accurate information to
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investors. 2). Transparency is synonymous with full disclosure.3). the information is
voluntary. Advisors make the process for obtaining information easy for investors. Goey, in
his book, has stated that improved disclosure might stifle sales a little in the short run, but it
would also add some much-needed trust and transparency. To understand whether a financial
advisor is transparent or not, the investors have to pose questions to them, as to whether they
are fiduciary, service charges, information about interests, and interests of the investors be put
first. Hung et al (2015): Increased transparency is necessary if investors are to understand the
potential conflicts of interest that their financial advisors face and be able to make informed
decisions about how to invest their money.
Emotional stability
One of the Big Five Personality Traits proposed by Digman(1990), Emotional stability refers
to confidence, sure of themselves and adventurous, exhibiting bravery and unencumbered by
worry or self-doubt. Crankshaw (2006), It is understood that the financial advisor has to
understand the various financial traits like hunters, money masters etc., and help them to make
decisions which provides both financial stability and emotional stability for the investors,
which requires that the financial advisor has to be knowledgeable and emotionally stable. In a
website „The Covenant Group‟, Alden Cass (2014), describes about how a financial advisor is
expected to identify and remove the clients‟ pain points. An unhappy client may not represent
a crisis but an opportunity to build trust and a stronger relationship to deliver a better client
experience is possible when the financial advisor manages his emotions. The financial advisor
should get connected with the clients, to make them feel special, understood, heard and
validated for their concerns. The financial advisor achieves emotional discipline, he is sure to
be trusted advisor that clients so desperately need to guide them through the complexity the
markets. Improving emotional stability, leads to a stronger connection with clients, which will
convert to increased client centered service, increased referrals, and an improved quality of
life for advisors. A study has revealed that the financial advisors are expected to provide
empathetic and personalized services to the investors. It has become imperative for the
financial advisors and also the demand is growing that the financial advisors have to connect
with the investors at various levels like emotionally, intellectually and socially. Grubman‟s
bottom lines: the financial advisors should integrate the financial and personal into their
financial advising practices, so that the investors feel comfortable and continue their
relationship with the advisors. (www.ssgafunds.com)
Availability of advisor
Inga-Lill (2012), in their doctoral thesis, has spoken about the time and place for a physical
meeting at the advisor‟s office. The frames in time and space and the fact that the meeting is
pre-booked gives an assurance to investor that the suggestions ought to be given by the
advisor will be well founded.
4. ROLE OF INFORMATION SEARCH
In today‟s context, the information is overloaded from various angles, that the individual
investor gets baffled and frantically searches for a base where he or she can rely upon for the
optimal investments. The investors are stressed out, becoming anxious, tensed and attention
span getting reduced, resulting in remembering difficulty and memorizing and thus leads to
poor decision making.(Wadding 2003). Monti et al.,(2014), have confirmed that investors are
aware of the fact that they are not well equipped to judge the technical financial information
they receive.Research has evidence that advisors are in possession of unique information and
that has more credibility with the investors. Moutinho (1987) defined information search as
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- Investors and Investment Choices: Determinants of the Financial Advisors Persuading the Investors
and the Role Played by Financial Advisors on the Decisions of the Investors
“an expressed need to consult various sources prior to making a purchase decisions”. Cho &
Lee (2006) have concluded from their study that the investors appreciate the potential value of
information search that they may not be inclined to take time to collect a large amount of
information from many sources; instead obtain information efficiently by consulting
professionals who offer more decision relevant information. Lee & Cho (2006) have quoted in
their paper that the investors often seek financial advisors for the decisions which require
technical knowledge and expertise. Howcroft et al.,(2003), in their research, have found out
that information on investment (around 47%) tended to be obtained predominantly through
professional advisors. Also they continue to posit through their study that the investors prefer
to talk to somebody face to face when selecting their products. Tseng et al.,(2011), in their
research, information searches have a strong positive influence on investment choices,
especially expert advice. As the investment decisions have to be made in the context of
increasing complexity and uncertainty, this leads investors to information from professional
advisors. In a White Paper (2012), it has been found out that there has been a considerable
increase in the investor inquiries regarding the investment choices. In a research it has been
reported that the financial advisors have shifted their focus from reduction of transaction costs
to providing information. The advisor has been the dominant source of information for buying
investments. The advisor has been mostly likely to be the first source used and the last source
used by more than any other source. (The Brondesbury Group, 2012).
Lee(2005), in his paper, coins the term “information intermediary” which refers to human
or a non-human party designed to assist investors in information processing. Rose (1999),
defines it as an economic agent supporting the production, exchange and use of information in
order to increase the value of the information for its end user or to reduce the cost of
information acquisition. Lee (2005), while detailing about intermediaries, mentions financial
advisors, whose role is to reduce the time and effort investors spend on information
acquisition and processing. He continues to iterate that offering intermediaries has been
suggested as one way to help consumers cope with problems caused by information overload.
Investors‟ reliance on information intermediaries for their decision making has been
increasingly noticeable in recent years. (Rappa 2003). The financial advisors are sought for
the aspects like risk, perceived expertise and opportunity cost of time. Mitra et al.,(1999), in
their research, have come out with an important finding that high risk credence services
(financial services) are associated with greater information search and greater reliance on
personal information services. They also continue to iterate that the higher the risk is
perceived in investments, the greater the importance of personal sources in making the
decision. Lee & Cho (2005), in their research, have found that specially those investors who
see themselves lacking knowledge and ability in financial matters tend to perceive higher
value of using financial advisors. Allen et al.,(1998) in his paper has vocalised thus: “Without
intermediaries, the informational barriers to participation would prevent investors from
reaping the benefits of the new markets and the markets themselves might not survive”.
Murray (1991), in his study, through his propositions and survey, has iterated that the
personal sources (financial advisors) are more preferred by consumers (investors), personal
sources are more effective and that respondents indicate a greater confidence in personal
sources of information. Nilsson et al., (2010), in their research, have found out that financial
advisors are most popular source used by the investors to get information about the
investments. Tseng (2012), in his paper, has said that organized and valuable information
from advisors might induce high-income investors to purchase more investments. Cho (2006)
had concluded in their study that the seeking of information from professional advisors tend
to increase when it is perceived by the investors that the investments are risky. Jonas (2003),
in his paper, had quoted few researches indicating the lack of knowledge, confidence or
expertise in the investors increased the likelihood of client seeking information from advisors.
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They are also strongly influenced by the advisors who are confident, expert, trust worthy and
a reputation for accuracy. Jonas(2003), in his research, had concluded that the advisors
presented the information in a balanced fashion, considering supporting and conflicting
evidence to the same extent. It also has been found out through various research that advisors
are considering more information than the investors and very thorough. The advisors were
seemed to recommend the investments which are best suited for investors‟ preferences
individually. According to Gelatt (1989) notion the advisors‟ job is to reduce complexity to
the investors; meaning they presented less pieces of information to their investors than they
searched while making recommendation. Jonas (2003), in their study, had mentioned that
advisors were motivated by accuracy motivation; the reason being, the considering the
consequences of wrong decisions searched for more conflicting evidences. Lee (2005)
summarises that the key benefit of using financial advisors (information intermediaries) is to
increase the efficiency of processing information relevant to decision making. Kennett et al.,
(1995), have understood and iterated that while presenting the information to the investors,
the financial advisors have gone to the extent of increasing the print size on brochures etc.
Chater et al., (2010), have reported in their paper that investors do little searching and
instead typically rely on the advice of a professional advisor. The advisor influences and
persuades the investor by inducing positive emotions and some investors are influenced by
the presence of advisors‟ expertise. They have iterated that consumer advisors and formal
study are more likely to be used for background financial knowledge than searching for
available investment options. Generally the factual information about the number of different
types of investment and an explanation about its pros and cons are explained by financial
advisors. Collins (2012), has established that the investor hires an advisor thereby reduces the
marginal cost of searching information relative to searching without assistance. The advisor
acquires the expertise on the relative technical topic and is able to spread the cost of acquiring
that knowledge across various clients. Capon et al.,(1996), while researching on mutual fund
investments, found that the investors preferred advisors for information source, and this
source ranked high above other personalized sources.
5. ROLE OF EVALUATION OF ALTERNATIVES
In the website codot.gov, the process of analyzing and evaluating alternatives applies
evaluation criteria to alternatives or options in a way that facilitates decision making. Refining
the alternatives have to be done to develop a final alternative option. This may involve a
single step or a series of steps depending on the complexity of the alternatives and the
decision. While evaluating the investment alternatives, key attributes like return, risk, tax
benefits, liquidity and convenience are considered. An evaluation would be viewed as
difficulty when decision makers fail to see how they can assess the alternatives, even though a
procedure may be clear to them. (Thompson 2003).In the website alliancebernstein.com, they
have recommended especially for a new investor, a financial advisor‟s help is required to
determine the proper allocation to fit his or her lifestyle. In case if there is an investment
portfolio, the financial advisor can evaluate the investors existing investments and determine
if they meet the investors short and long term goals. The reason quoted is that the advisor has
the time, knowledge, research tools, experience and expertise to evaluate the investments.
Capon et al., in their research, have found out that affluent consumers invested in mutual
funds on the influence of the advisors. The advisor influenced performance group and the
advisor influenced/service/substance groups invested large amounts in mutual funds; they are
significantly focused. Allen & Gale (1998) have spoken about the evaluation of financial
advisors: “To evaluate a complex security, a complex portfolio, or a complex strategy requires
more than just knowing the facts about a firm‟s balance sheet. It requires financial expertise
that an ordinary investor usually does not possess. Intermediaries assume the role of advisors,
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- Investors and Investment Choices: Determinants of the Financial Advisors Persuading the Investors
and the Role Played by Financial Advisors on the Decisions of the Investors
who bridge the gap between the investors‟ lack of knowledge and the expertise required to get
the most out of sophisticated markets”. McKenna (1995), in his article, has spoken about real
time marketing where he insists the importance on focusing on real-time consumer
satisfaction, providing the support, help, guidance in evaluating the investments and winning
their loyalty.
Chuah & Devlin (2011), have quoted the recent approaches to consumer policy in UK.
The hypothesis is that if the investors are provided with as much as information possible and
help them to evaluate and improve their financial capability, the investors are sure make more
informed and suitable choices in their investments. Thaler & Sunstein (2008), in their book,
have explained about Nudge: Financial advisors necessarily take up the role of a Nudge,
whereby the investors‟ behaviour is altered in a predictable way to make an intelligent choice
out of the alternatives carefully evaluated without forbidding any options or significantly
changing their investment alternatives. Diacon et al., (1996), in his paper, has pointed out
thus: to make an informed choice while making investing in various avenues the investor has
to understand the essential differences between simple products and more complex products,
and to evaluate the relative merits of the different avenues. At this crucial moment, the
knowledge and service of the financial advisor comes in handy and helps investors in
evaluating the various investments. Hamilton‟s (2001) concept of CRM is exactly what the
financial advisor does while evaluating the alternatives; the financial advisor stores and
analyses the vast amount of data produced by various interactions with the investors, the
services rendered yields a greater insight into customer behaviour. This insight helps the
financial advisor to suitably charge the investors based on their spending intentions.
Gronroos (1997) has observed that when the relationship between the investor and the
financial advisor becomes closer, the investor shifts his focus from evaluating the investments
to evaluating the relationships as a whole. This necessarily creates a value to both the investor
and the financial advisor. In a survey conducted among the Japanese financial institutions, it
has been found that the investors have been the main focus and that the investors needs have
been received by these institutions and it has been evaluated and integrated into their decision
making choices. (Turner,1994). Advisors typically present several choices of investments to
clients while deciding on the suitable investment. The investors believe that the advisor will
recommend what is best for the client even at the expense of their own commission. (The
Brondesbury Group). The Brondesbury Group (2012) have commented that nearly three
quarters of investors agree that the advisor discusses the pros and cons of the investments
while recommending an investment. As the investor becomes familiar with the investments,
the discussion slowly shifts to a broader discussion of selection criteria. In a survey conducted
for UK‟s FSA, it has been reported that while making evaluation of investments, the main
concerns were type of the product, personal confidence and trust in advisors. The investors
have stated that they consulted a financial advisor about the specific product to choose.
(Chater et al., 2010).
Debling, (1999) has pointed out that the financial advisor does an evaluation of the
investment avenues and finds out the best package value at any given time for their investors.
Continuing with Anderson and Weitz (1989), the competence of financial advisor could be
understood from the ability to help the buyer plan, evaluate and purchase. Stendardi et al.,
(2006), the financial advisor develops a financial plan based on investor‟s goals and ascertain
from where they are to where they want to be. While processing the investment avenues for
their investors through a sequence, Stendardi et al (2006) have recommended that financial
advisors will help investors in evaluating the investment avenues based on the goal set by
them. While evaluating the investments, the advisor helps the investor by developing a plan
and discloses the various assumptions in generating the recommendations and the logic used
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in evaluating the investments. Kahn, in the special report (www.ssgafunds.com), has reported
that the choices that have to be made in investments are similar to health care issues and are
unpleasant or difficult, which in turn, requires someone (financial advisors) to make those
kind of choices for them. “Because they are stressful and not fun to think about, they would
rather ask a financial agent to make those choices”. Soderberg et al., (2014): The investments
are viewed from technical aspect based on the probable outcomes, evaluating those
investments and making recommendations based on the customers‟ risk preferences.
6. ROLE OF DECISION MAKING
The investors, for a better outcome and for more accurate or optimal investment decisions, it
becomes imperative to seek out and attend to advice of an advisor. Interacting with the
advisors makes the investors to think of the investments in new ways or alternative ways of
investments not previously considered (Heath & Gonzalvez,1995). Allen & Gale, (1998), in
their paper have posited that even among the very wealthy, the use of private banking services
and hedge funds, where advisors make investment decisions on behalf of their clients, has
become increasingly common. They have also iterated that the intermediaries can help in
evaluating on the choice of securities and also beyond this; it can offer some assurance that
there will be pleasant surprises. Dealing with the intermediary provides insurance against risk.
Specializing at high levels and also formalizing, involvement and participation while deciding
investment alternatives for the investors, by the financial advisors, have being done by them
with great zeal. (Lievens et al., 2001). Violetta (2007), while discussing the literature review
in the research paper, has suggested that the ageing population in particular require the help of
the financial advisors for processing complex financial information. Kahn and Baron(1995),
had claimed in their paper, that the advice of advisors are sought by the consumers especially
when high stake is involved and emotionally difficult decisions are to be taken. Logan (2015)
in his article has pressed that: “The most consistent advice given by skilled financial advisors
is to hold off making any major financial decision and do nothing with the money – at least in
the beginning”. Pfau (2016), in his article, has pointed out that the good advisors adopt a new
methodology, by which, they attempt to find out what the investors needs to achieve with
their wealth. There is immense value in comprehensive financial planning and good decision
making which is made possible only by a good financial advisor. As investors tend to make
mistakes while deciding the investment choices, they look for financial advisor for investment
decisions as an alternative. (Allen 2001). In the survey conducted by Brondesbury Group
(2012), it has been proved that out of every six investors interviewed, five of them identify
themselves having an advisor relationship where the advisor makes the recommendations and
then the client decides what to do. In fact they discuss multiple investments and finally
decide what to buy. The decision is certainly the investors‟.
Don Trone (2016), in his article, predicts the future of the financial advisor to be a
behavioural governance coach, takes on a greater leadership role in the eyes of their clients.
By 2020, elite financial advisors will be valued for their BIG thinking. Warnick et al., (2016),
in their research, have emanated the following conclusions regarding the advisors
involvement in decision making. The respondents believed that the advisor should be left to
decide everything with regard to investment decisions, that they should rely mainly on the
advisors for investments, that the investor should consider the advisors‟ proposal before
deciding, and ask the advisor about their opinion before deciding. Chater et al., (2010), in
their paper, have found out that an advisor helps investors to come out of their inertia when
the savings and investments are concerned. During the decision process, information is
provided to investors both about the products and the possible biases likely to affect the
investments. In their study, they have reported that nearly 58% of investors‟ final choice of
products was influenced by advisors, while the purchase decision was initiated in a quarter
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- Investors and Investment Choices: Determinants of the Financial Advisors Persuading the Investors
and the Role Played by Financial Advisors on the Decisions of the Investors
occasions. When investors suffer from limited information and also from certain biases, the
advisors have taken the role of educating them and also counteracting their biases in deciding
the investment avenues. Nearly six out of ten investors had informed that they were
influenced by the financial advisors and their final choices of investments were based on the
recommendations by the advisors. Investors in the Chezh Republic and UK are particularly
likely to cite a recommendation from a financial advisor as their main reason for choice. They
are most likely to be guided by a financial advisor in their choice. Abhijeet Chandra (2008), in
his conference paper, has recommended that the financial advisor has the ability to analyse the
behavioural issues of an investor and helps to formulate efficient investment strategies.
Financial specialists have endorsed that the investors are indeed sure to get precise benefits by
integrating recommendations from financial advisors. The recommendations come from
expert power possessed by advisors because of their knowledge. It has also been proved that
different strategies for decision making has been employed by the advisors from that of
investors, which essentially increases the effectiveness of investment decisions. Monti et
al.,(2014), in their paper, have expressed that advisors are being requested by investors to
decide on their behalf, as if advisors would decide about their investments.
Heath and Gonzalez(1995), in their paper, have researched the recommendations from
advisors are sought as it helps the investors to make better decisions and avoid mistakes, helps
them to organize their thoughts, and makes them more confident in their decisions.
7. IMPACT OF FINANCIAL ADVISORS
Rajaobelena et al., had concluded in their research that trust and satisfaction strengthens the
long term relationship between the financial advisor and the investor, where by the investors
will be prone to provide referrals. They have proved in their research that the investors are
willing to repurchase from the financial advisors when their expectations are fulfilled.
Huntley (2006), in his paper, has found out that when there is a strong relationship between
investors and financial advisors, the investors are willing to recommend financial advisors to
their counterparts. Ramsey & Sohi (1997) has found out in their paper that when the
customers are satisfied with their financial advisors, they intend to do business with financial
advisor again and there tends to be a greater anticipation of future interaction with those
advisors. Roberts et al., (2001), in their research paper, have concluded through their research,
that the advisors service has influenced the investors‟ intention to say positive things about
the advisor, intends to keep purchasing, encourage friends and relatives to do business with
the advisor, willing to test new investments, and willing to share more information with the
advisor.
Healy (1999), in his paper, have posited that long term customers buy more, use less of
time and bring in friends and family as new customers. McKenna (1995), has iterated that the
financial advisor‟s willingness to give investors access to them and view their actions and
getting feedback becomes an integral part on the role played by the financial advisor whereby
both investor and the financial advisor can develop themselves. Colgate et al., (1998) has
echoed certain findings that the satisfaction, lower quality alternatives and good investment
size promotes commitment among investors and is being developed by providing benefits
superior to the alternatives, shared values and communication and goodwill by the financial
advisors. Investors tend to shift to other financial advisors, if they are providing better
services. So it has become imperative for the financial advisors to provide better and
appropriate services. The financial advisor offers unique or superior benefits to the investors
that the investors retain with their financial advisors and never think of switching off to
another advisor. To retain the investors with themselves, the financial advisors provide
quality services with continued effort. The quality services, in this context refer, to the quality
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of service process which meets the investor expectations and tends to exceed their
expectations. Hughes (1994) has observed thus: The advantages of maintaining long term
relationship with the investor is that they contribute greater profitability expand their
relationship more deeply and refer their friends and relatives. The same idea has been
substantiated by File & Prince (1994) in his research that the satisfied investor will continue
to have relationship the advisor and refers other investors to his advisor and encourages them
to stay with the advisor. The financial advisor understands that the long term profitability of
the investor is the major prerequisite by putting together services which in turn gets the best
results for the financial advisor as well.
The commitment created by the financial advisor on the investor has an effect that there
are less chances of changing the provider (Kiesler, 1971). With the advent of interactive
technology, the financial advisors are in a position to provide customized adaptations while
delivering services to the investors. (Debling, 1999). Yorke (1999), in his book, has
suggested that the impact of services of the financial advisor can be sensed through the
involvement and ultimately integration, if the benefits of „peace of mind‟ or „confidence‟ is
being developed and sustained, a full range of services is being provided to meet the clients‟
growing needs, the financial advisor gives a feeling that the investor is treated individually
and that the financial advisor is always available to offer a speedy service. Appiah-Adu et al
(2001), while discussing about the customer retention, have identified operational efficiency
as an important predictor, wherein, they regularly and systematically seek improvement and
demonstrate a sound working relationship with the investors. Ndubisi and Wah (2005) have
found out through their research that the impact of services of financial advisors can be
understood from the satisfaction exhibited by the investors from the trustworthy behaviour,
genuine commitment to service, informing customers efficiently and accurately, delivering
services competently, handling potential and manifest conflicts skillfully by the financial
advisors. The impact of service can be best understood from the fact the financial advisor gets
to gain the privileged information about customers‟ needs and thereby serving them
satisfactorily. The impact is such that the advice given by financial advisors to the investors
makes them to depict a higher level of financial assurance and peace of mind. (Montmarquette
et al 2012).
Montmarquette et al (2012), have indicated that having a financial advisor significantly
increases the person‟s level of confidence that he or she will have enough money to retire
comfortably. They have also reported that a satisfied investor with his or her financial advisor
is an indication that he or she is willing to continue services with the advisor. Stendardi et al.,
(2006), concludes that the advisor determines whether the investor is comfortable with the
investments and takes care to understand the investor by posing more additional questions and
concerns and addresses them. Chater et al.,(2010), have established that the investors would
recommend their financial advisor to a friend or would make another purchase. Satisfaction
has been the highest among the investors regarding their financial advisors. Haslem (2008),
has asserted that the investors feelings of insecurity, can be overcome by financial advisors
advice, validate their decisions, and in fact as a neutral party in spousal disagreements.
Medical research has contributed itself for financial advice where it has been proved that MRI
scan indicated that the financial decisions has been less taxing on the brain while receiving
advice.
The impact of the services of advisors is such that their advice not only gets restricted to
financial matters but also extends to non-pecuniary factors and also taxes, credit, insurance
etc., depending upon the needs of the investors. It has been found out from research that the
services of financial advisor are seen as a complement to financial capacity and not as a
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- Investors and Investment Choices: Determinants of the Financial Advisors Persuading the Investors
and the Role Played by Financial Advisors on the Decisions of the Investors
substitute for financial knowledge. As the income, education and income increases, the
services of financial advisor are also most sought out.
8. CONCLUSIONS
The role played by the financial advisors in various stages of investment decision making has
been detailed in length and the advantages that are likely to arise for the investors in their
investments. In certain research papers, there are indications that only investors with high
income prefer advisors for their investment than that of investors with less income. In our
country, the concept of financial advisor has been limited, to a larger extent, to insurance and
it is very slowly gaining momentum. There is an opinion that advisors may not act in the best
interest of the investors and chances are that they are likely to be misled. In such a situation,
the financial service authorities should educate the investors, inculcate the habit of investing
and thereby prosper.
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