Third-Party Quality Certification in the Market for Financial Advice
Abstract
We study third-party quality certification in the market for financial advice. Using Barron’s Top Financial Advisors rankings and multiple identification strategies, we find evidence that being named a top advisor increases both assets under management and accounts for individuals and their firms. The effects increase sharply around state-level thresholds for certification, suggesting that clients value the certification itself and not solely the underlying quality. Contrary to industry folklore about a “Barron’s curse,” we find that after certification, advisors are less likely to engage in misconduct, consistent with reputational models. The certification effect is robust to controlling for increased media attention and operates primarily through certification value rather than visibility, with larger effects for advisors from smaller firms and those with less experience.
This paper was accepted by Camelia Kuhnen, finance.
Funding: The authors acknowledge the support of the Institute for the Study of Free Enterprise.
Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.05423.
