Adviser Compensation, Endogenous Entry, and the Advice Gap

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Abstrakt

To prevent biased advice, regulators increasingly ban commission payments to financial advisers. Such bans are associated with "advice gaps", meaning that advice becomes less accessible. To understand the trade-off between the quality and accessibility of advice, this paper develops a model of price competition in advice markets with endogenous entry of advisers. While commission bans increase consumer surplus in the short run, they hurt the profitability of advisers. In the long run, advisers exit the market, advice becomes inaccessible and consumer surplus decreases. These results imply that accounting for the endogeneity of market structure is important when regulating advice.
OriginalsprogEngelsk
TidsskriftAmerican Economic Journal: Microeconomics
Antal sider59
ISSN1945-7669
StatusUdgivet - 16 dec. 2020

Bibliografisk note

Epub ahead of print. Published online: December 16, 2020

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