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Intermediated Investment ManagementNeal StoughtonWU Vienna University of Economics and Business Youchang WuUniversity of Wisconsin - Madison - Department of Finance, Investment and Banking Josef ZechnerVienna University of Economics and Business Administration June 1, 2010 Journal of Finance, Vol. 66, No. 3, pp. 947-980, 2011 EFA 2007 Ljubljana Meetings Paper AFA 2009 San Francisco Meetings Paper Abstract: Intermediaries such as financial advisers serve as an interface between portfolio managers and investors. A large fraction of their compensation is often provided through kickbacks from the portfolio manager. We provide an explanation for the widespread use of intermediaries and kickbacks. Depending on the degree of investor sophistication, kickbacks are used either for price discrimination or aggressive marketing. We explore the effects of these arrangements on fund size, flows, performance and investor welfare. Kickbacks allow higher management fees to be charged, thereby lowering net returns. Competition among active portfolio managers reduces kickbacks and increases the independence of advisory services.
Number of Pages in PDF File: 47 Keywords: investment management, intermediation, investment adviser, kickback JEL Classification: G20, G23, G28 Accepted Paper SeriesDate posted: March 25, 2008 ; Last revised: March 18, 2012Suggested CitationContact Information
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