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Switching from commissions on mutual funds to flat-fees: How are advisory clients affected?

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  • Meyer, Steffen
  • Uhr, Charline
  • Loos, Benjamin
  • Hackethal, Andreas

Abstract

Using a field study at a German brokerage, we investigate advised individual investors’ behavior and outcomes after self-selecting into a flat-fee scheme (percentage of portfolio value) for mutual funds. In a difference-in-differences setting, we compare 699 switchers to propensity-score-matched advisory clients who remained in the commission-based scheme. Switchers increase their portfolio values, improve portfolio diversification, and increase their portfolio performance. They also demand more financial advice and follow more advisor recommendations. We argue that switchers attribute a higher quality to the unchanged advisory services.

Suggested Citation

  • Meyer, Steffen & Uhr, Charline & Loos, Benjamin & Hackethal, Andreas, 2023. "Switching from commissions on mutual funds to flat-fees: How are advisory clients affected?," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 423-449.
    • Handle: RePEc:eee:jeborg:v:209:y:2023:i:c:p:423-449
    DOI: 10.1016/j.jebo.2023.03.015
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    More about this item

    Keywords

    Household finance; Individual investor; Financial advice; Inducements; Consumer financial protection;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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