How Important is Affiliation Between Mutual Funds and Distributors for Fund Flows?*

Is unbiased financial advice to retail investors sufficient? Answers from a large field study

Bjarne Florentsen, Ulf Nielsson, Peter Raahauge and Jesper Rangvid

Review of Finance, 2022, vol. 26, issue 4, 971-1009

Abstract: We quantify the importance to mutual fund flows of affiliation between funds and their distributors. Bank failures create exogenous variation in retail customers’ exposure to bank-affiliated mutual funds. When a bank fails, its customers are moved to other banks that distribute their own affiliated mutual funds. Following such exogeneous bank shifts, customers sell their fund holdings and replace them with funds affiliated with their new banks. Customers react sequentially over time. After 4 years, a third of customers’ investments have been reallocated. In spite of large reallocations, investors do not end up with better-performing fund portfolios.

Keywords: Mutual funds; Retail investors; Fund flows; Distribution channel (search for similar items in EconPapers)
JEL-codes: D14 G01 G11 G21 (search for similar items in EconPapers)
Date: 2022
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