Financial Services Review

Financial Services Review Masthead

John Grable — 2024-12-02

From the Editor

John Grable — 2024-12-02

Should Investors Defer Long-Term Gains in Taxable Stock Portfolios?

Jeff Whitworth — 2024-12-02

Investors with taxable portfolios sometimes delay the sale of appreciated stock to defer capital gains taxes. While this strategy does help to reduce taxes, it can cause the portfolio to become more concentrated over time, leading to higher overall volatility and lower long-term returns. This paper evaluates the tradeoff between tax efficiency and diversification via Monte Carlo simulation and finds that diversification is far more important for the investor’s terminal wealth, especially over longer time horizons. Under a reasonable set of assumptions, investors are better off rebalancing almost completely each year, even though it requires selling some recent winners and paying capital gains taxes. While tax efficiency does become somewhat more important for individuals who are taxed more heavily on gains or who expect an eventual step-up in basis, even these investors should tolerate only a modest increase in portfolio concentration.

Racial/Ethnic Disparities in Financial Advice Seeking: A Decomposition Analysis

Di Qing — 2024-12-02

Financial advice seeking is associated with many positive benefits for consumers. Yet, most U.S. households are not working with a financial planner and research has pointed to the lack of racial and ethnic diversity among those who do. This study examines racial/ethnic disparities in using a financial planner. Logistic regression analyses show that Black and White consumers are more likely than Asian and Hispanic consumers to use financial planners for saving and investment decisions. A Fairlie decomposition analysis shows racial/ethnic differences among the determinants that are associated with financial advice seeking. The differences in the determinants were large between White and Hispanic consumers and much narrower between Black and Hispanic consumers. Risk tolerance, objective financial knowledge, and income were the most important determinants to explain racial/ethnic differences in financial planner use. This study provides insight into possible barriers to working with financial planners for a diverse group of consumers.

Social Determinants of Health and Desirable Financial Behaviors

Jia Qi — 2024-12-02

The COVID-19 pandemic caused people to change their positive and negative financial behaviors. Social determinants of health (SDH) include several conditions in a person’s environment, e.g., economic stability, education access and quality, health care access and quality, neighborhood and built environment, and social and community context. This research aims to investigate how SDH is related to desirable financial behaviors while considering financial knowledge as the mediation variable, using data collected in 2021 during the COVID-19 pandemic. Social cognitive theory (SCT) was used to develop the theoretical framework. The results of this study indicate that economic stability, education access and quality, health care access and quality, and social and community context are positively associated with desirable financial behaviors. Further, financial knowledge plays a significant role in mediating the relationships between social determinants of health and desirable financial behaviors. This article provides implications on the effect of SDH on financial behaviors, underscoring the relevance of applying the SCT framework to examine the interplay between social factors and financial behaviors. The discussion and implication section of this study provides strategic direction to enhancing financial behaviors through the improvement of SDH and financial knowledge.

Improving Communication with Financial Consumers: Insights from a Study of Phone Call Phobia

Wookjae Heo — 2024-12-02

A phone call phobia is a symptom of avoiding real-time communication that ranges from mild nervousness to a debilitating fear of making or receiving phone calls. The situation of avoidance of real-time communication, including phone call phobia, can potentially influence personal finance, particularly if it limits an individual's ability to communicate effectively with not only family, friends, and employers but also financial service providers. As the COVID-19 pandemic has affected ways of socializing and communicating, it is important to understand the situation and related factors of phone call phobia. This study, therefore, examined factors related to three types of phone call phobia (employer, family, and friends) and six types of communication preferences (face-to-face, phone calls, letters, email, text messaging, and online messaging apps). Using data from an online survey conducted in 2021, this study considered a list of comprehensive factors, including psychological factors, financial-psychological factors, financial status, job-related factors, health-related behavior, and demographic factors, in ordered logistic regression and seemingly unrelated regression estimation models. The findings provide insights to improve communication between financial consumers and financial services providers.

Artificial Intelligence in Accounting, Medicine, and Law with Potential Implications for Financial Planning: A Review of Literature

Ella Faulhaber — 2024-12-02

Generative Artificial Intelligence (AI) is rapidly reshaping multiple fields. Generative AI is a type of AI that can create new content or information from scratch, rather than simply manipulating or organizing existing data. This has the potential to revolutionize the way that financial advisors interact with clients and manage their businesses. However, there are many unknowns as it relates to the level and degree of disruption that Generative AI can bring to financial planning. Therefore, this paper explores the interaction of AI with financial planning, drawing insights from the practices of accounting, medicine and law. While the primary focus remains on financial planning, this interdisciplinary approach aims to enrich understanding and examines parallels and emerging trends across diverse professional domains. Each of the four professions integrates client needs, preferences and goals into their decision-making processes.