Journal of Financial and Quantitative Analysis Vol. 58 No. 3 2023
Regulating Commission-Based Financial Advice: Evidence from a Natural Experiment
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 35% larger inflows. I interpret these results as investor responses to price competition fostered by a reduction in distribution costs.
- DOI
- 10.1017/s0022109022000898
- Volume
- 58
- Issue
- 3
- Pages
- 1359-1389
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref