Professor Alessandro Previtero will present the paper The Value of Non-Alpha Services (with J. van Bisbergen and R. Xing)
Households heavily rely on financial advisors. Nonetheless, advised portfolios underperform passive benchmarks. To account for this evidence, we introduce non-alpha services in a standard mutual fund model (Berk and Green, 2004). In equilibrium, funds with higher skills at raising capital for (non-alpha) services can deliver lower net alpha. We empirically test the relevance of non-alpha services, analyzing the revenues of over 2,000 financial advisors over 13 years. Client portfolio alphas show a weak association with advisor revenues. The breadth of the services offered to clients has an economically strong impact on advisor revenues.