Family and friends: The most important source of financial advice?

Family and friends are among the most important sources of financial advice for retail investors. That may sound surprising in a world dominated by TikTok influencers, Reddit forums, and algorithmic recommendations. But survey evidence shows that investors rely on family and friends for investment guidance almost as much as they rely on professional financial advisors. The important question is whether this kind of advice actually helps investors make better decisions. This paper paints a very different picture when the advice comes from close personal relationships rather than pseudonymous online networks. Personal financial advice and portfolio quality - Olga Balakina , Claes Bäckman , Andreas Hackethal , Tobin Hanspal , Dominique M Lammer - Review of Finance, 2026 - A version of this paper can be found here - Want to read our summaries of academic finance papers? Check out our Academic Research Insight category Key Academic Insights Personal financial advice is extremely common Survey evidence shows that family and friends are among the most frequently used sources of investment advice. Fifty-one percent of investors who receive financial advice report frequently consulting family and friends, compared to only 13 percent who rely heavily on social media. Personal advice differs fundamentally from online advice Previous research on social investing often focuses on anonymous online interactions, where investors share speculative ideas, chase high returns, and promote risky assets. This paper argues that personal relationships create very different incentives. Recommenders internalize the consequences of bad advice because they care about preserving trust and relationships. Investors seek trust and expertise, not excitement Followers report valuing competence, experience, and trustworthiness far more than past returns when choosing whose advice to follow. Only 7 percent of respondents mention past performance as an important characteristic in an advisor. Recommenders tend to be more experienced investors The individuals who provide advice generally have larger portfolios, more investing experience, higher financial aptitude, and stronger diversification than average investors. Recommenders also tend to avoid lottery-like and attention-driven stocks. Portfolio overlap provides evidence of real advice transmission Using brokerage-level referral data from a large German online bank, the authors observe that Followers and Recommenders share approximately 18 percent of their portfolio holdings on average. Comparable placebo matches show overlap close to zero, suggesting the similarity is unlikely to occur randomly. Advice strongly promotes fund investing If a Recommender invests in funds, the Follower becomes significantly more likely to invest in funds as well. The effect is particularly strong for ETFs and passive funds. Personal advice does not appear driven by recent returns Contrary to theories of “return-biased transmission,” the paper finds little evidence that investors provide advice primarily after experiencing strong returns. Most Recommenders report always sharing performance information rather than selectively highlighting only good outcomes. Followers end up with better portfolios Investors who follow personal financial advice tend to hold more diversified portfolios, higher risky-share allocations, and better risk-adjusted returns compared to other new investors. Importantly, these benefits do not appear to come from excessive trading or higher fees. Personal advice often resembles professional financial planning The recommendations documented in the study focus heavily on diversification, low-cost funds, and long-term investing rather than speculation. In many ways, trusted personal advice resembles high-quality financial planning more than social-media stock promotion. Practical Applications for Investment Advisors Trust remains a central advantage for human advisors The study highlights how much investors value trust, expertise, and long-term relationships when receiving financial advice. These are areas where human advisors maintain a significant edge over anonymous online sources. Good advice spreads through networks High-quality financial behaviors can propagate socially. Investors who understand diversification and long-term investing may indirectly improve the financial outcomes of friends and family. The quality of the source matters enormously Not all peer advice is beneficial. The paper shows that the outcomes depend heavily on who provides the advice. Investors connected to financially sophisticated peers benefit substantially more than those exposed primarily to speculative online communities. ETFs and diversified funds dominate high-quality advice The study provides additional evidence that diversified funds naturally emerge as preferred recommendations in trusted relationships. Investors appear reluctant to recommend speculative single-stock ideas to close friends and family. How to Explain This to Clients “Many people worry that investment advice from friends and family automatically leads to poor decisions or speculation.But this paper shows something important. Personal financial advice often looks very different from social-media investing culture. When advice comes from trusted relationships, people tend to recommend diversified funds, long-term investing, and lower-risk strategies rather than speculative trades. Investors also seem to carefully evaluate whether the person giving advice is knowledgeable and trustworthy. The key takeaway is that incentives matter. Anonymous online influencers may benefit from attention and excitement. Trusted personal relationships create stronger incentives to give thoughtful advice” The Most Important Chart from the Paper Figure 5: Who do you turn to for financial advice? The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index. Abstract We document widespread use of personal financial advice among retail investors. Individuals seek competent and trusted sources for financial advice among their family and friends. Investors who provide advice to family and friends are positively selected and emphasize the reputational costs of giving risky financial advice. While previous studies have shown that advice shared on social media promotes active trading, we show that personal financial advice encourages investing in funds over single stocks. Our evidence complements the existing literature on financial advice in online social networks by highlighting differences in incentives and outcomes of advice to close personal connections. About the Author: Elisabetta Basilico, PhD, CFA — Important Disclosures For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, determined the accuracy, or confirmed the adequacy of this article. 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