Investment preferences and risk perception: Financial agents versus clients

•Perception of common investment profile terminology is very heterogeneous.•Different perceptions lead to miscommunication between agents and their clients.•Both clients’ and agent's risk tolerance affect agents’ risky investments.•Incentive schemes affect customization of portfolios by the agents.•We revisit previous field evidence in a controlled laboratory setting We study four fundamental components of financial agency settings: The perception of commonly used investment profile terminology, agents’ customization of portfolios to clients’ preferences, the effect of agents’ and clients’ preferences on investment levels, and the role of compensation schemes. We observe large heterogeneity in the perception of investment profiles, resulting in substantial miscommunication between clients and agents. Financial agents show a high willingness to implement their clients’ preferred investment profiles, yet appear to fail because of deviating perceptions. Agents’ own investment preferences matter, but take a back seat to clients’ preferences in determining investment shares. Different monetary incentive schemes hardly affect behavior. Our results suggest that moral constraints can limit agents’ discretion in the agency situation.