Best Buys and Own Brands: Investment Platforms’ Recommendations of Mutual Funds
54 Pages Posted: 23 Aug 2017 Last revised: 26 Oct 2018
Date Written: August 3, 2018
Individual investors increasingly trade and hold mutual funds via investment platforms, many of which produce fund recommendations (‘best buys’). Using data from leading platforms in the U.K., we examine the determinants, impact on flows, and performance of these recommendations. We find platform recommendations have significant effects on the funds investors choose. The recommendations themselves overlap considerably with those produced by Morningstar, and on average add value. However, platforms favor affiliated (‘own brand’) funds, and funds that pay higher commissions, and neither of these out-perform. A regulatory change during our sample period suggests that banning commission sharing reduces costs to investors.
Keywords: Mutual Funds, Investment Platforms, Recommendations
JEL Classification: G11, G20
Suggested Citation: Suggested Citation