Title: Financial literacy and advice: Substitutes or complements Authors:  Demetris Koursaros - Cyprus University of Technology (Cyprus) [presenting]
Abstract: The aim is to investigate the relationship between financial literacy and financial advice. We first introduce a simple two-period convincing model between a financial advisor and a household. In our model, households have heterogeneous beliefs with respect to the distribution of true returns. More dispersed beliefs correspond to less sophisticated households. We show that financial advisors face a lower cost to shift beliefs and convince a financially unsophisticated household to invest in a larger amount, which is, however, a sub-optimal decision for the household, and earn a higher reward. Eventually, more financially sophisticated households are more likely to ask for financial advice. We extend our model in many directions and provide simulation exercises. A novelty of our model is that we allow the sophistication level of the advisor to vary and provide empirical predictions for the matching with households with different sophistication levels. We test these within a large sample of Canadian financial advisors and their clients.