The price of free advice

Machiel van Dijk, Michiel Bijlsma and Marc Pomp

No 66, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: What factors determine how well consumers make their actual choices with regard to financial products? This paper empirically evaluates two different choices consumers make when buying deferred annuities. One choice concerns the type of insurance policy, the other concerns the choice of insurance provider. For both choices we will analyse what factors explain the quality of the choice made. In particular, we will investigate the role of financial advice in the decision making process. By combining Dutch consumer survey data and data on quotations by Dutch life insurance companies, we obtain the following results. First, respondents who buy their policy directly from an insurer attain a significantly better match between their risk preferences and the type of policy chosen than respondents who purchase their policy through an insurance broker. Second, respondents who buy their policy through an insurance broker obtain a significantly lower pay-out than respondents who purchased their policy directly from an insurance company. These results raise doubts about the functioning of both the market for financial advice and the market for life insurances.

JEL-codes: J51 (search for similar items in EconPapers)
Date: 2006-07
New Economics Papers: this item is included in nep-cbe, nep-fin, nep-fmk and nep-ias
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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:66

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