Financial Advisor Compensation Structure and Client Equity Allocations

David Blanchett, Michael Guillemette and Qi Sun

Journal of Behavioral Finance, 2025, vol. 26, issue 2, 251-259

Abstract: Investment advice is a difficult-to-value service and aligning incentives between financial advisors and investors is imperative. A compensation structure that pays advisors primarily through up-front commissions creates a potential short-term relationship, while a trailing commission arrangement better aligns with an intertemporal relationship. This paper explores this effect using a dataset of approximately 120,000 variable annuities from a single insurance company sold from January 1999 to December 2020. We find that clients of financial advisors who are paid higher up-front commissions have greater recent return bias compared to clients of advisors who receive higher trailing commissions. These findings indicate that a nuanced approach to compensation may be needed to balance investor protection with the proper incentives for financial advisors to provide unbiased and high-quality advice.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/15427560.2023.2294812 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:hbhfxx:v:26:y:2025:i:2:p:251-259

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/hbhf20

DOI: 10.1080/15427560.2023.2294812

Access Statistics for this article

Journal of Behavioral Finance is currently edited by Brian Bruce

More articles in Journal of Behavioral Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().