Wharton Pension Research Council Working Papers

When and How to Delegate? A Life Cycle Analysis of Financial Advice

Hugh Hoikwang Kim, SKK University
Raimond Maurer, Goethe University
Olivia S. Mitchell, The Wharton School, University of Pennsylvania

The authors are grateful for research support provided by NIH/NIA Grant #P30-AG12836 and NIH/NICHD Population Research Infrastructure Program R24 HD-044964, and the Pension Research Council/Boettner Center for Pensions and Retirement Security at the University of Pennsylvania. The authors also received research funding from the Metzler Exchange Professor program at the Goethe University of Frankfurt, the German Investment and Asset Management Association (BVI), and the Special Research Fund at the SKK GSB, SKK University. The Wharton High Performance Computing Platform provided an excellent setting for the numerical analysis.


Using a theoretical life cycle model, we evaluate how much workers benefit from having the option to hire a financial advisor when it is costly for employees to rebalance their own financial portfolios. Results indicate that having access to a financial advisor at the start of one’s career can be quite beneficial increasing certainty equivalent consumptions by 1.1%. If delegation to an advisor is available only a decade after entering the labor market, the benefit of delegation is cut by half, and it falls further if delegation is available only later in life (at age 60). We also examine whether simpler target date funds and fixed weight portfolios benefit consumers, compared to the outcomes with customized financial advice. We find that the simpler portfolio products would need to be provided at zero cost, in order to benefit consumers as much as having access to a financial advisor.


Date Posted: 05 March 2019