Executive summary

This paper investigates the relationship between the propensity to seek for professional advice, financial knowledge and overconfidence, as well as the determinants of financial knowledge and overconfidence for a representative sample of Italian financial decision makers. The demand for financial advice is found to be positively related to financial knowledge and negatively related to overconfidence as measured by the mismatch between perceived and actual capability. High self-assessment of one's own competence turns out to be significantly and negatively associated with high levels of financial knowledge, which in turn is higher among male, wealthier and more risk averse individuals. These findings show that financial advice acts as a complement rather than as a substitute of financial capability, thus confirming the concerns about regulation of financial advice being not enough to protect less sophisticated investors needing it most. Moreover, behavioural traits such as self-confidence do play a role in financial choices and are related with the level of financial literacy. Therefore, investor education programmes may be beneficial not only directly, i.e. by raising financial competence, but also indirectly, i.e. by enhancing people awareness in their financial capability and by hindering overconfident behaviours and behavioural biases. The paper contributes to the regulatory debate on the development of financial advice as a tool of investor protection. It also delivers relevant policy insights for the Italian context, where the vast majority of individuals exhibit both a low degree of literacy and a high propensity towards informal rather than professional advice.

We wish to thank Henriette Prast, Ugo Rigoni and all the participants to the conference Consob-Bocconi "The Development of Securities Markets. Risks, Trends and Policies", Milan, 26th February 2016, for very helpful comments. The responsibility for any mistakes and for the opinions expressed remains our own. The ideas and positions in the paper are personal views of the authors and cannot be attributable to Consob.