Birds of a Feather: The Impact of Homophily on the Propensity to Follow Financial Advice

Abstract

Homophily - individuals' affinity for others like them - is a powerful principle that governs whose opinions people attend to. Using nearly 2,400 advisory meetings, we find that homophily has a significant positive impact on the likelihood of following financial advice. The increased likelihood of following stems from homophily on gender and age for male clients and from sameness on marital and parental status for female advisees. Moreover, the homophily effect is mitigated by reduced information asymmetry between client and advisor and a long-term relationship with the bank. Our results suggest that client-advisor matching increases individuals' propensity to follow financial advice. Received June 21, 2017; editorial decision June 7, 2018 by Editor Philip Strahan.