What is the Impact of Financial Advisors on Retirement Portfolio Choices and Outcomes?

Within the Oregon University System's defined contribution retirement plan, one investment provider offers access to face-to-face financial advice through its network of brokers. We find that younger, less highly educated, and less highly paid employees are more likely to choose this provider. To benchmark the portfolios of broker clients, we use the actual portfolios of self-directed investors and counterfactual portfolios constructed using target-date funds, a popular default investment. Broker clients allocate contributions across a larger number of investments than self-directed investors, and they are less likely to remain fully invested in the default option. However, broker clients' portfolios are significantly riskier than self-directed investors' portfolios, and they underperform both benchmarks. Exploiting across-fund variation in broker compensation, we find that broker clients' allocations are higher when broker fees are higher. Survey responses from current plan participants support our identifying assumption that the portfolio choices of broker clients reflect the recommendations of their brokers.