If you dive deep into financial advisor fixed effects, you’ll begin to understand that an advisor's own portfolio has a bigger impact on the portfolios of their clients than the characteristics of the clients themselves. To help us make sense of this and to further explain financial values and the cross-section of returns, we are joined by the influential and notorious Professor of Finance, Juhani Linnainmaa. Our conversation begins with a comprehensive analysis of financial values, including a comparison between the trading patterns of advisors and those of their clients, a disquisition of misguided beliefs, an examination of client characteristics, and the ins and outs of portfolio variation and customizations. Canada recently adopted regulations from the Mutual Fund Dealers Association (MFDA), and we discuss how this has affected the use of financial advice in the country before comparing the benefit of increased equity share to the cost of advice, what hiring a new advisor before a financial crisis may mean for clients, and the role of regulation in the industry. We end with the cross-section of returns by examining accounting-based anomalies pre-1963, how profitability and investment relate to data mining, why a financial firm would switch between growth and value, and finally, Professor Juhani Linnainmaa’s definition of success. Timestamps: 0:00:00 Intro 0:04:46 How the trading patterns of advisors compares to their clients 0:10:57 How investors can assess the quality of a potential advisor’s beliefs 0:14:10 How the evolution of advised portfolios over the client’s life differs from a lifecycle fund 0:22:48 The explanation behind the high cost of advice in Juhani's sample 0:25:40 How adoption of the Mutual Fund Dealers Association affected the use of financial advice in Canada 0:32:11 Whether or not it is reasonable to assume that financial advice with lower fee products is net beneficial 0:34:05 How getting a new advisor before the financial crisis affected investors’ ability to remain invested 0:42:35 What Juhani found when he looked at accounting-based anomalies like profitability and investment in the pre-1963 period 0:52:43 How the value premium decomposes into firms that changed in size and firms that changed in book value of equity 1:02:41 What Juhani's findings on factor momentum suggest about pursuing momentum as a strategy 1:03:01 Juhani defines success in his life Links From Today’s Episode: Juhani Linnainmaa — http://jlinnainmaa.com/ Juhani Linnainmaa on LinkedIn — https://www.linkedin.com/in/juhani-linnainmaa-832134194/ Juhani Linnainmaa on Facebook — https://www.facebook.com/juhani.linnainmaa/ Tuck School of Business — https://www.tuck.dartmouth.edu/ Kepos Capital — https://www.keposcapital.com/ Chicago Booth School of Business — https://www.chicagobooth.edu/ National Bureau of Economic Research — https://www.nber.org/ UCLA Anderson School of Management — https://www.anderson.ucla.edu/ Aalto University — https://www.aalto.fi/en ‘The Misguided Beliefs of Financial Advisors’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3101426 ‘Taking the Battle for Financial Literacy to Where the Eyeballs Are’ — https://anderson-review.ucla.edu/millenial-learning/ ‘Retail Financial Advice: Does One Size Fit All?’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2522934 Mutual Fund Dealers Association — https://mfda.ca/ ‘Money Doctors’ — https://scholar.harvard.edu/files/shleifer/files/moneydoctors_journaloffinance.pdf ‘Regulation of Charlatans in High-Skill Professions’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2979134 ‘The History of the Cross Section of Stock Returns’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2897719 Michael Roberts on LinkedIn — https://www.linkedin.com/in/prof-michael-r-roberts/ ‘Does Academic Research Destroy Stock Return Predictability?’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2156623 ‘The Value Premium’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3525096 Dimensional Fund Advisors — https://www.dimensional.com/ ‘Decomposing Value’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2083166 Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/ Rational Reminder on X — https://twitter.com/RationalRemind Rational Reminder on YouTube — https://www.youtube.com/channel/ Rational Reminder Email — info@rationalreminder.ca Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ Benjamin on X — https://twitter.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/ Cameron on X — https://twitter.com/CameronPassmore Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/