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dramatic increase in activity in the PPS occurring in recent years. The
external advisors managed coordinated mass changes of funds for a
large number of clients simultaneously through so-called web robots.
According to this study, in April 2010 about 8.2 per cent of the
pension savers in the PPS hired an external financial advisor for their
PPS fund investments. This essentially confirms results from previous
studies.
Objectives
In light of this, it is motivated to study how these external financial
advisors actually perform. This study investigates, first, whether these
advisors are worth their fee for the group that chose to buy this
service, and, second, whether the advisors generated higher excess
return than individuals who actively managed their funds themselves.
Third, the study investigates whether the background characteristics
differ between groups depending on the decision to hire an external
financial advisor or not.
Methods
The investigation is based on administrative data from the Swedish
Pensions Agency, consisting of individual-level data on the monthly
account holdings in the PPS. The data cover all savers in the PPS
from January 2000 to April 2010. These data are linked to detailed
annual administrative registers from Statistics Sweden with data on
income, education, financial wealth, and real estate.
Findings
The results show that the group with a financial advisor consists of
persons with relatively low education, low financial wealth and high
disposable income, who receive income from unemployment
insurance or from self-employment more often than others, and who
to a greater extent save in a private pension insurance scheme.
Individuals who are more active in the PPS without hiring an external
financial advisor have relatively high education and income. There is
also a large group of relatively passive individuals in the PPS who are
outside the default fund and who have no external agent – these were
active in the first year when the PPS started but since then have
remained passive (i.e., made no change to their initial fund choice).
