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Financial Advice

  • Roman Inderst
  • Marco Ottaviani

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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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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  1. 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.
  2. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," Working Papers wp114, University of Michigan, Michigan Retirement Research Center.
  3. 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.
  4. Hackethal, Andreas & Haliassos, Michael & Jappelli, Tullio, 2009. "Financial advisors: A case of babysitters?," CFS Working Paper Series 2009/04, Center for Financial Studies (CFS).
  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. Roman Inderst & Marco Ottaviani, 2012. "Competition through Commissions and Kickbacks," American Economic Review, American Economic Association, vol. 102(2), pages 780-809, April.
  7. 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.
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