Investor Decision-Making and the Role of the Financial Advisor: A Behavioural Finance Approach

170 Pages·2017·2.54 MB·English

by  Caterina Cruciani (auth.)

INVESTOR
DECISION-MAKING
AND THE ROLE OF
THE FINANCIAL
ADVISOR
A Behavioural
Finance Approach
Caterina Cruciani
Investor Decision-Making and the Role of the
Financial Advisor
Caterina Cruciani
Investor Decision-
Making and the Role
of the Financial
Advisor
A Behavioural Finance Approach
Caterina Cruciani
Department of Management
Ca’ Foscari University of Venice
Venice, Italy
ISBN 978-3-319-68233-4 ISBN 978-3-319-68234-1 (eBook)
https://doi.org/10.1007/978-3-319-68234-1
Library of Congress Control Number: 2017954969
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To my boys Valerio and Damiano
and
to Raffaele, “click, click, click”.
Preface
This book focuses on providing a thorough and reasoned review of the
literature on the role of financial advisory in modern financial markets. It
summarizes a few years of research on the role of trust in financial inter-
mediaries on market participation, bringing together the different litera-
tures that I perused to understand the full potential of trust in financial
markets with my research experience alongside professional financial
advisors.
The recent financial crisis has dramatically changed the perception of
the role of financial markets and negatively affected the credibility of the
financial intermediaries that are part of it. The consequences of the crisis
on market participation and trust have led regulators worldwide to focus
on direct measures to ensure increased transparency and investors protec-
tion, mandating new standards and increasing requirements. This book
explores the financial literature to understand the potential effects of
these direct measures and to propose alternative indirect measures.
This book aims at providing a complete picture of the elements at play
in the evaluation of the roles and functions of financial advisors. It brings
together elements of traditional finance with behavioural finance models,
using a direct language and setting aside formalities. This book uses a
behavioural perspective to understand both client and advisor behaviour.
In particular, it addresses the psychological underpinnings of client
behaviour and the often-neglected role of emotions, but also the
vii
viii Preface
behavioural incentives that advisors, just like clients, are subject to due to
nature of the relationship and the regulatory requirements.
In a time where the financial markets suffer because of a trust deficit,
this book focuses on how the lens of trust is the paradigm through which
an advisor may fulfil his mandate at his best and shows empirical evi-
dence that non-market considerations may play an important role in
rebuilding the confidence in financial markets.
Mestre-Venice, Italy Caterina Cruciani
Acknowledgements
Writing this book would not have been possible without the support of
many people, who have made my journey easier in a number of ways.
I am grateful for the financial support by the Center for Experimental
Research in Management and Economics (CERME) of Ca’ Foscari
University of Venice and by Global Asset Management (GAM) during
the last year and a half, which provided security and made room for
creativity.
In particular, I wish to thank CERME Director Professor Michele
Bernasconi and CERME Vice-Director Professor Massimo Warglien for
providing useful comments and feedback on my research since my PhD
years and offering me the chance to develop new ideas in a thriving envi-
ronment like the CERME laboratory.
I also want to thank Riccardo Cervellin and Luciano Scirè from GAM
for the countless useful and interesting insights from the world of finance
professionals and the comments and suggestions that have helped shape
my research on Trust in financial advisory.
Professor Ugo Rigoni provided important insights to my research and
has helped me in the development and improvement of the research pro-
gram on trust in financial markets. I want to thank him for listening to
my ideas, giving them credit, and helping me strengthen my understand-
ing of the world of finance. I still have a long way to go, and am fortunate
to have such a mentor and research partner.
ix
x Acknowledgements
Gloria Gardenal provided useful insights to this book and is another
key element of the team of researchers who study trust at CERME. I wish
to thank her for the practical writing suggestions, her affectionate sup-
port and for being a great research partner.
Anna Moretti was the first one to suggest this book should be written.
I thank her for the unrelenting and loving support, the silver linings and
for providing practical guidance on how to organize the writing of a
book.
I need to thank the colleagues at the Department of Management that
have contributed to creating a productive and enjoyable working envi-
ronment where this book could be written. Thanks to Marisa Agostini,
Giulia Baschieri, Elisa Cavezzali, Francesca Checchinato, Maria Lusiani,
Alessandra Perri, who, along with Gloria Gardenal and Anna Moretti,
offered support, practical writing tips and some enjoyable time off from
writing when I needed it most.
Along the same lines, I also wish to thank Professor Ugo Rigoni,
Professor Elisa Cavezzali and Professor Antonio Proto for welcoming me
to the Financial Institutions group at the Department of Management of
Ca’ Foscari University in these last few years.
The list of acknowledgements would not be complete without men-
tioning my wonderful, loving family. I owe the biggest thank you to my
husband and sons, who provide constant inspiration and loving support
and to whom this book is dedicated.
Contents
Part I The Investor 1
1 Understanding Investor Behaviour 3
2 Different Views on Economic Rationality:
Affect and Emotions 37
Part II The Advisor 65
3 Financial Advisory: Basic Roles and Functions 67
4 Financial Advisory: Normative Developments and 
Incentives 93
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