Best Buys and Own Brands: Investment Platforms’ Recommendations of Mutual Funds
51 Pages Posted: 23 Aug 2017 Last revised: 21 Apr 2018
Date Written: April 13, 2018
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: Suggested Citation