Consumer Persuasion and Remuneration of Advisors in Financial Markets

31 Pages Posted: 6 Nov 2019

Date Written: October 3, 2018

Abstract

Many consumers rely on professional advisors when purchasing financial products. We compare fee-based and commission-based remuneration systems for financial advisors from a total welfare perspective in a theoretical model, where advisors face transaction costs from persuading consumers of a recommended product and consumers have an initial prior belief about their best suitable product. We show, that total welfare is higher under a commission-based remuneration system in comparison to a fee-based remuneration system, if the magnitude of commission payments for different products are sufficiently close to each other.

Keywords: financial advice, fee for advice, commissions, brokers

JEL Classification: D18, D21, D43, G28

Suggested Citation

Weinert, Markus, Consumer Persuasion and Remuneration of Advisors in Financial Markets (October 3, 2018). Available at SSRN: https://ssrn.com/abstract=3259871 or http://dx.doi.org/10.2139/ssrn.3259871

Markus Weinert (Contact Author)

University of Hohenheim ( email )

Fruwirthstr. 48
Stuttgart, 70599
Germany

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