Research Proposal for Phd in Finance

PhD Research Proposal

THE IMPACT OF THE ATTACHMENT OF A FINANCIAL PRODUCT ADVISER TO A RETIREMENT SAVINGS PLAN ON THE INVESTMENT DECISIONS OF THE MEMBERS

Ray Boffey School of Finance and Business Economics Edith Cowan University 100 Joondalup Drive Joondalup, Western Australia 6027 Phone: 61 8 6304 5264 Fax 61 8 6304 5633 Email: r.boffey@ecu.edu.au

Seventy seven percent of working Australians are effectively investors by government mandate: They are required to participate in retirement savings (RS) plans that incorporate investment choice. There is evidence that these working Australians, and their counterparts overseas, find these investment choice decisions difficult. Moreover, this difficulty may result in decisions that are not fully rational. For instance, some researchers have highlighted the significant numbers of members who remain in company-selected default investment options and don’t seem interested in making active investment choice decisions. If decisions are “not fully rational” then the result can be a retirement savings shortfall. This is an outcome about which both researchers and policy makers have expressed concern. From a theoretical point of view, behavioral models have been developed in recent years to explain decision-making that is “not fully rational”. In contrast, the longer-standing Life Cycle Permanent Income Hypothesis (LCPIH), depicts an economically rational individual, making decisions that optimally smooth consumption over a life cycle. Previous research has considered the role played by both financial education and RS plan design in moving individuals closer to the rational ideal modeled in the LCPIH. The aim of the proposed research is to investigate whether the attachment of a financial adviser to an RS plan will lead the members to make more rational investment choice decisions as per the LCPIH. A unique data set for this research will be provided by an industry partner that has a large number of client companies for...