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

Stanislav Sokolinski

Journal of Financial and Quantitative Analysis, 2023, vol. 58, issue 3, 1359-1389

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.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:58:y:2023:i:3:p:1359-1389_14

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