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Regulating Commission-Based Financial Advice: Evidence from a Natural Experiment

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  • Sokolinski, Stanislav

Abstract

Do limitations on commissions paid to financial advisers reduce prices of financial products and stimulate investment? I examine these questions by estimating the causal effects of regulating commissions for mutual fund distribution. I exploit the unique institutional setting in Israel and the 2013 policy change when the government reduced commissions differently for different fund types. The reform led to a major decline in fund expense ratios and a consequent increase in fund flows. Funds with price-sensitive investors experienced 35% larger inflows. I interpret these results as investor responses to price competition fostered by a reduction in distribution costs.

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  • Sokolinski, Stanislav, 2023. "Regulating Commission-Based Financial Advice: Evidence from a Natural Experiment," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(3), pages 1359-1389, May.
    • Handle: RePEc:cup:jfinqa:v:58:y:2023:i:3:p:1359-1389_14
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