Financial advisor's covert discrimination against long-term clients

While trust relationships are crucial for financial advisory industry, financial advisors may engage in activities that can destroy those relationships. This paper investigates whether financial advisors tend to exploit existing clients in favor of new clients. We use the offering of high-return-zero-risk products as an inverse measure for advisors' service quality in the context of Chinese trust products featuring implicit guarantees. We find that as the advisor–client tenure increases, advisors tend to recommend less high-return-zero-risk products. As a result, existing clients' investment portfolios' returns decline over time. We also find that financial advisors intensify discrimination against existing clients when the supply of high-return-zero-risk products is low. Such discrimination is particularly pronounced when clients are not wealthy or lack financial knowledge, and advisors tend to offer higher-commission products to existing clients.