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Commission Bans and the Source and Quality of Financial Advice

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  • Janko Gorter
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    Abstract

    In the wake of the financial crisis, several countries are to ban commission payments to improve the quality of financial advice. This paper investigates the potential impact of commission bans on the source and quality of financial advice. To this end, we extend Inderst and Ottaviani's (2012) framework by allowing for both direct and intermediary advice. Our extended model has a unique separating equilibrium where customers that are na�ve about conflicts of interests prefer direct advice to intermediary advice, though the latter is of better quality. Alert customers rationally prefer intermediary advice. Accordingly, the welfare benefits from commissions bans may be limited in practice.

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    File URL: http://www.dnb.nl/en/binaries/Working%20Paper%20350_tcm47-278162.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 350.

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    Date of creation: Sep 2012
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    Handle: RePEc:dnb:dnbwpp:350

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    Web page: http://www.dnb.nl/en/
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    Related research

    Keywords: information provision; conflicts of interests; commission bans; distribution channel; consumer financial protection;

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    1. Heski Bar-Isaac & Guillermo Caruana & Vicente Cuñat, 2010. "Information Gathering and Marketing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 375-401, 06.
    2. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    3. Roman Inderst & Marco Ottaviani, 2009. "Misselling through Agents," American Economic Review, American Economic Association, vol. 99(3), pages 883-908, June.
    4. Giuseppe Moscarini & Marco Ottaviani, 1998. "Price Competition for an Informed Buyer," Cowles Foundation Discussion Papers 1199, Cowles Foundation for Research in Economics, Yale University.
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