The Market for Conflicted Advice

43 Pages Posted: 26 Sep 2016

See all articles by Briana Chang

Briana Chang

University of Wisconsin - Madison - Department of Finance, Investment and Banking

Martin Szydlowski

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: September 24, 2016

Abstract

We study decentralized markets in which advisers have conflicts of interest and compete for customers via information provision. We show that competition partially disciplines conflicted advisers. The equilibrium features information dispersion and sorting of heterogeneous customers and advisers: advisers with expertise in more information sensitive assets attract less informed customers, provide worse information, and earn higher profits. We further apply our framework to the market for financial advice and establish new insights: it is the underlying distribution of financial literacy that determines the consumers’ welfare. When advisers are scarce, the fee structure of advisers is irrelevant for the welfare of consumers.

Keywords: Information Provision, Conflicted Advice, Two-Sided Matching, Sorting

JEL Classification: C78, D83, G11, G23

Suggested Citation

Chang, Briana and Szydlowski, Martin, The Market for Conflicted Advice (September 24, 2016). Available at SSRN: https://ssrn.com/abstract=2843050 or http://dx.doi.org/10.2139/ssrn.2843050

Briana Chang (Contact Author)

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States

Martin Szydlowski

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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