Regulating Commission-Based Financial Advice: Evidence from a Natural Experiment

65 Pages Posted: 14 Jun 2019 Last revised: 14 Apr 2021

See all articles by Stanislav Sokolinski

Stanislav Sokolinski

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: April 14, 2021

Abstract

Do limitations on commissions paid to financial advisers reduce prices of financial products
and stimulate investment? I examine these questions by estimating the causal effects
of regulating commissions for mutual fund distribution. I exploit the unique institutional
setting in Israel and the 2013 policy change when the government reduced commissions
differently for different fund types. The reform led to a major decline in fund expense ratios
and a consequent increase in fund flows. Funds with price-sensitive investors experienced
a 35% larger inflows. I interpret these results as investor response to price competition fostered
by a reduction in distribution costs.

Keywords: Financial Advice, Financial Regulation, Mutual Funds

JEL Classification: G23, G24, G28, G53

Suggested Citation

Sokolinski, Stanislav, Regulating Commission-Based Financial Advice: Evidence from a Natural Experiment (April 14, 2021). Available at SSRN: https://ssrn.com/abstract=3399000 or http://dx.doi.org/10.2139/ssrn.3399000

Stanislav Sokolinski (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

111 Washington Avenue
Newark, NJ 07102
United States

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