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Financial Advice

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Author Info

  • Roman Inderst
  • Marco Ottaviani

Abstract

Financial advice could play an essential role in well-functioning markets for retail financial products, given that many consumers find it difficult to evaluate the complex products on offer. However, conflicts of interest, which are pervasive in some parts of the industry, can turn advice into a curse rather than a blessing for consumers, especially when consumers are not sufficiently wary. Through a simple model of financial advice, we overview the pros and cons of various policy interventions, such as imposing mandatory disclosure, banning commissions, and regulating contract cancellation terms. (JEL D14, D18, G21, G28)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.494
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 50 (2012)
Issue (Month): 2 (June)
Pages: 494-512

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Handle: RePEc:aea:jeclit:v:50:y:2012:i:2:p:494-512

Note: DOI: 10.1257/jel.50.2.494
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References

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  1. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," CeRP Working Papers 54, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  2. Andreas Hackethal & Michael Haliassos & Tullio Jappelli, 2009. "Financial Advisors: A Case of Babysitters?," CSEF Working Papers 219, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 03 Mar 2011.
  3. Sendhil Mullainathan & Markus Noeth & Antoinette Schoar, 2012. "The Market for Financial Advice: An Audit Study," NBER Working Papers 17929, National Bureau of Economic Research, Inc.
  4. Roman Inderst & Marco Ottaviani, 2012. "Competition through Commissions and Kickbacks," American Economic Review, American Economic Association, vol. 102(2), pages 780-809, April.
  5. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
  6. Cynthia J. Pahl, 2007. "A compilation of state mortgage broker laws and regulations, 1996-2006," Community Affairs Report 2007-2, Federal Reserve Bank of Minneapolis.
  7. Santosh Anagol & Shawn Cole & Shayak Sarkar, 2012. "Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market," Harvard Business School Working Papers 12-055, Harvard Business School, revised Jan 2013.
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Citations

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Cited by:
  1. Butler, Jeff & Giuliano, Paola & Guiso, Luigi, 2012. "Trust and Cheating," CEPR Discussion Papers 9202, C.E.P.R. Discussion Papers.
  2. Salvatore Piccolo & Giovanni W. Puopolo & Luis Vasconcelos, 2013. "Non-Exclusive Financial Advice," CSEF Working Papers 347, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  3. Dahlquist, Magnus & Martinez, Jose Vincente & Soderlind, Paul, . "Individual Investor Activity and Performance," Working Papers on Finance 1408, University of St. Gallen, School of Finance.

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