Investor Experience and Portfolio Choice: Regulatory Costs from MiFID II

MiFID II forces banks and wealth managers to ask clients for their investment knowledge and experience. The implied regulatory view is that less e ...

Author(s):

Sebastian Lehner

MiFID II forces banks and wealth managers to ask clients for their investment knowledge and experience. The implied regulatory view is that less experience should result in less risk taking. While this is neither shared in theoretical nor in empirical finance, it becomes a source of legal risk for asset managers and banks. How do banks react? What are the welfare implications? So far, this question was impossible to answer. The relevant data have not been available as they are not shared by banks. The authors circumvent this problem by using publicly available portfolio recommendations from robo-advisory firms.

They find that less educated and less experienced investors receive on average lower recommended equity allocations. This ingrains rather than corrects behavioural biases.

Type: EDHEC Publication
Date: le 12/04/2021
Research Cluster : Finance

See Also

Campus Life: Master project oral defense for students of the MSc in Climate Change & Sustainable Finance: a jury’s perspective
News
- 27-07-2022
Thierry Lebrun, Director Sustainability Banking at Credit Agricole Nord de France...
Why does EDHEC’s MBA rank #1 for diversity and what makes diversity so important?
News
- 25-07-2022
According to Forbes, there are numerous important benefits to having a more diverse...
What will the company of the future look like?
News
- 21-07-2022
Emerging from a global health crisis, companies are being reshaped and adapting to a...
Meet an Alumnus: EDHEC’s Master of Finance, a steppingstone to investment banking
News
- 20-07-2022
Zhihuo Luo joined the MSc in Corporate Finance & Banking. He will be working at...