Regulating Commission-Based Financial Advice: Evidence from a Natural Experiment
66 Pages Posted: 14 Jun 2019 Last revised: 29 Sep 2020
Date Written: September 28, 2020
Do limitations on commissions paid to financial advisers reduce prices of financial products and stimulate investment? I examine this question 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: Suggested Citation