Best Buys and Own Brands: Investment Platforms’ Recommendations of Mutual Funds

51 Pages Posted: 23 Aug 2017 Last revised: 21 Apr 2018

Gordon Cookson

Financial Conduct Authority

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Howard Jones

University of Oxford, Saïd Business School

Jose Vicente Martinez

University of Connecticut

Date Written: April 13, 2018

Abstract

Individual investors increasingly trade and hold mutual funds via investment platforms, many of which make their own fund recommendations. Using data from leading platforms in the U.K., we examine the determinants, impact on flows, and performance of these recommendations. Platforms’ recommendations favor low-cost funds but also those which are affiliated with platforms or have high revenue sharing arrangements with them. Recommendations affect flows considerably, although investors somewhat discount recommendations of affiliated funds. Recommended funds outperform non-recommended funds overall, but recommended affiliated funds do not. A regulatory change during our sample period suggests that banning revenue sharing reduces costs to investors.

Keywords: Mutual Funds, Investment Platforms, Recommendations

JEL Classification: G11, G20

Suggested Citation

Cookson, Gordon and Jenkinson, Tim and Jones, Howard and Martinez, Jose Vicente, Best Buys and Own Brands: Investment Platforms’ Recommendations of Mutual Funds (April 13, 2018). Available at SSRN: https://ssrn.com/abstract=3024128 or http://dx.doi.org/10.2139/ssrn.3024128

Gordon Cookson

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Tim Jenkinson (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Howard Jones

University of Oxford, Saïd Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/research/people/Pages/HowardJones.aspx

Jose Vicente Martinez

University of Connecticut ( email )

2100 Hillside Road, Unit 1041
Storrs, CT 06269
United States

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