Business and Society

Investors’ social preferences and loyalty, what banks can learn

December 17, 2012 | 1 min read
In their paper, “Social Preferences and Investor Loyalty”, Bauer and Smeets (both also from the European Centre for Corporate Engagement (ECCE)) show that social preferences are positively related to investor loyalty. They collected survey and experimental data from clients of two Dutch banks that offer socially responsible mutual funds and savings accounts. “We find that investors with strong social preferences are more loyal and generate substantially more revenue for these banks. This holds even after controlling for investment knowledge, risk aversion, wealth and gender. We show that the main driver of investor loyalty is social identification and not higher expected returns on SRI funds compared to conventional funds.”

The importance of identification

The study shows that banks and mutual fund brokers can benefit from attracting investors with strong social preferences. However, socially responsible investors at a mainstream broker are more likely to close their brokerage account than conventional investors are. It is likely that this difference is driven by the different nature of the banks and broker. The socially responsible banks exclusively offer SRI mutual funds, but the mainstream broker offers both SRI funds and a wide variety of other mutual funds. “It might be easier for investors with strong social preferences to identify with a socially responsible bank than with a mainstream broker that offers some socially responsible mutual funds. On the other hand, investors with a preference for local funds stay significantly longer at the mainstream broker, which suggests that they can identify well with the broker,” according to Paul Smeets.

The data show that there is substantial heterogeneity in social preferences, even within the clientele of a socially responsible bank. This heterogeneity can result in different levels of investor loyalty. Overall, the evidence emphasizes the role of the mutual fund broker and banks in the relationship to their customers and stresses the advantages of helping investors to match their portfolio to their individual preferences.


This article may be reproduced according to our terms of use with attribution (and link, if online) to To be cited as: “Investors’ social preferences and loyalty, what banks can learn”, Paul Smeets, Rob Bauer,, December 17, 2012.

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Research Paper


Rob Bauer
Rob Bauer is Professor of Finance, Maastricht University

Paul Smeets
Maastricht University

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