Willingness to Take Financial Risks and Portfolio Choice: The Moderating Role of Financial Planners' Advice

Abstract

This study utilizes data from seven waves of the Survey of Consumer Finances to investigate how financial planning advice moderates the relationship between self‐reported financial risk tolerance and two aspects of investment behavior: stock market participation and the proportion of financial wealth allocated to stocks. Regression analyses, which controlled for demographic and socio‐economic factors, indicated that individuals with the lowest self‐reported risk tolerance were significantly more likely to invest in stocks and allocate a larger share of their financial assets to equities when they received advice from a financial planner. This effect remained consistent regardless of whether stock market participation was measured through direct investments or indirect equity ownership via exchange traded funds (ETFs), mutual funds, or retirement accounts. In contrast, for individuals with high risk tolerance, the use of a financial planner had no significant impact on direct stock ownership and was associated with a reduction in the proportion of financial wealth allocated to directly held stocks. However, for households with moderate to high risk tolerance, financial planner use still increased both stock market participation and the share of wealth allocated to equities when indirect holdings through ETFs, mutual funds, or retirement accounts were included in the definition of stock investments. These findings suggest that financial planners guide moderately and highly risk‐tolerant investors away from direct stock ownership and toward more diversified equity investments.