Working Papers

Do Financial Advisors Charge Sustainable Investors a Premium? - Reject & Resubmit at Management Science

[Lab-in-the-field experiments]

with Paul Smeets and Utz Weitzel

Abstract: Despite growing concerns from regulators about potential price discrimination against sustainable investors, empirical evidence is lacking. To address this gap, we conduct two lab-in-the-field experiments with 415 professional financial advisors from the US and Europe. Our results show that these advisors impose a premium on sustainable investors compared to conventional investors. This premium persists even when differences in effort, skill, and costs, as well as higher gains from trade are ruled out. Notably, advisors charge the highest fees to sustainable investors with low financial literacy, while sustainable investors with high financial literacy pay no premium at all. These results are consistent with price discrimination.

The paper was presented at (including scheduled) the Western Finance Association 2023, the Experimental Finance Conference 2021, the Research in Behavioral Finance Conference 2022, the European Research Network on Philanthropy (ERNOP) Conference 2021, as well as the University of Bremen, the Erasmus School of Economics, the Leibniz Institute for Financial Research SAFE, Utrecht Uiversity, the University of Innsbruck, Radboud University, the University of Helsinki, Aston Business School, the University of Kassel, the University of Maastricht, the briq Institute on Behavior and Inequality, the University of Zurich, and the University of Rome.

Media coverage: Busines Insider NL, BNR Nieuwsradio

Dirty Money. 

The impact of negative ESG news sentiment  on dividend consumption

[Empirical study with archival data]

with Thomas Pauls and Paul Smeets

Abstract: Using a large European bank dataset, we show that in response to negative ESG news exposing controversial business practices of dividend-paying firms, investors amplify their consumption from dividend income, compared to dividends from non-controversial firms. This increased consumption is immediate, occurring on the dividend payout day. We control for selection effects and rule out attention and adjustments to the dividend payout size as mechanisms. Instead, our results are consistent with laboratory evidence showing that people who earn money by violating social norms counter resulting negative emotions with mood-enhancing behavior, such as increased consumption. This aligns with the principles of emotion regulation theory. We demonstrate the applicability of emotion regulation theory outside of the laboratory in an important real-world context, financial markets. 

The paper was presented at (including scheduled) the German Finance Association (DGF) 2023, as well as Aarhus University and the Center for Environmental Economics Montpellier.

Conform to the norm. Peer information and sustainable investments

[Field experiment]

with Max Grossmann, Andreas Hackethal, and Thomas Pauls

Abstract: We conduct a field experiment with clients of a German universal bank to explore the impact of peer information on sustainable retail investments. Our results show that information about peers’ inclination towards sustainable investing raises the amount allocated to stock funds labeled sustainable, when communicated during a buying decision. This effect is primarily driven by participants initially underestimating peers’ propensity to invest sustainably. Further, treated individuals indicate an increased interest in additional information on sustainable investments, primarily on risk and return expectations. However, when analyzing account-level portfolio holding data over time, we detect no spillover effects of peer information on later sustainable investment decisions. 

Work in Progress

Investor Confidence in Delegated Decisions

[Lab experiments]

with Katrin Gödker

Abstract: We experimentally investigate the impact of delegation on investor beliefs and subsequent choices. Investors form more optimistic beliefs about the quality of their investments when they actively decide to whom they delegate, compared to a setting in which delegation is random. Further, investors who actively select their asset manager overestimate the quality of delegated investment decisions, i.e., the costly effort of their investment manager. Subsequently, these investors are overly reluctant to fire their asset manager, relative to a rational Bayesian agent. We present evidence that the mechanism involves motivated reasoning. Our results help explain stylized facts in financial markets.

The paper was presented at (including scheduled) the Experimental Finance Conference 2023.

Local bank presence and household investments into green infrastructure

[Empirical study with archival data]

with Max Grossmann, Andreas Hackethal, and Thomas Pauls

Abstract: We show that the closure of bank branches results in less local installations of residential photovoltaic systems in Germany. The effect is driven by the closure of relationship banks, not transaction banks, indicating that better access to credit due to long-term relationships of borrowers with their banks is driving the result. Further, our findings indicate that banks’ own lending products substitute rather than complement government subsidies for green investments. This implies a double-edged role of bank branches for household investments into sustainable infrastructure and has implications for policies that aim to promote green household lending.

The paper was presented at (including scheduled) the Swiss Society for Financial Market Research (SGF) 2023.


Sustainable Investment Preferences And How They Are Delegated

[Doctoral thesis]

Abstract: According to a recent amendment to the EU-wide MiFID II regulation, financial institutions are required to elicit their clients’ sustainability preferences. Through this regulation change, sustainability has found a natural entry point into consultations between financial advisors and clients. This dissertation explores the impact of sustainability-related financial advice on investment behavior. Comprising three distinct chapters, it delves into the dynamics of financial advisors' role in promoting sustainable investments. Overall, this dissertation shows that financial advisors may foster sustainable investing by providing information to clients during the buying decision, even though this information does not affect the sustainability of portfolios in the long-term. However, selling behavior is less influenced by new information on the sustainability of firms. The findings also reveal that financial advisors charge a premium for sustainable investing mandates and clients who cannot signal high financial literacy bear the burden of higher fees. 

Awards: FIR-PRI Finance & Sustainability Award for Best PhD Thesis.

Elicitation of sustainability preferences under MiFID II – Influence on the dynamics of financial advice

[Published in the VBAJournaal of the CFA Society Netherlands]

Referee Services

Journal of Banking and Finance, Journal of Economic Behavior and Organisation, Journal of International Money and Finance, Frontiers in Behavioral Economics.