When presented with a low-fee index fund, the advisors still advocated a change to a high-fee, actively managed fund that would make the client worse off than the allocation he started with, according to the study.

As the auditor's income increased, the advisors recommended investing in stocks and domestic assets more, "a fact that may be explained by an assumed higher risk or loss tolerance for the well-off," the study said. The advisors also did not seem to tailor the mix of stocks and bonds to the age of the client.

"Overall, our findings suggest that the market for advice works very imperfectly," the authors said. "Our evidence suggests that advisors' self-interest plays an important role in providing advice that is not in the best interests of their clients."

The report acknowledged that advisors do provide worthwhile services such as giving clients more confidence to invest, protecting them from fraud and reducing transaction costs.
--Karen DeMasters

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