Commission Bans and the Source and Quality of Financial Advice
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 naïve 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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- Inderst, Roman & Ottaviani, Marco, 2009.
"Misselling through agents,"
IMFS Working Paper Series
36, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
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08-17, New York University, Leonard N. Stern School of Business, Department of Economics.
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Cowles Foundation Discussion Papers
1199, Cowles Foundation for Research in Economics, Yale University.
- Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
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