Regulating inattention in fee-based financial advice

Roger M. Edelen, Kingsley Y.L. Fong and Jingyi Han

Journal of Financial Economics, 2025, vol. 164, issue C

Abstract: We study the impact of disclosure and inattention on the decision to retain fee-based financial advice using a two-tiered natural regulatory experiment. Increased salience in fee disclosure raises the drop rate for advice, implying improved attention — particularly for relatively sophisticated investors. However, a novel auto-drop requirement for inattentive investors generates far more drops, implying limited attention despite salient disclosure — particularly for the unsophisticated. Contrary to studies of commission-based advice, we find that investors benefit from fee-based advice. Benefits are higher for less sophisticated investors, who tend to be detrimentally auto-dropped. Drops triggered by salient disclosure tend to be beneficial.

Keywords: Nudges; Default choice; Disclosure; Future of Financial Advice (FOFA); Mutual funds; Household finance (search for similar items in EconPapers)
JEL-codes: D14 G11 G28 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:164:y:2025:i:c:s0304405x24002083

DOI: 10.1016/j.jfineco.2024.103985

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