How ( Not ) to Pay for Advice : A Framework for Consumer Financial Protection

@inproceedings{Inderst2010HowN,
  title={How ( Not ) to Pay for Advice : A Framework for Consumer Financial Protection},
  author={Roman Inderst and Marco Ottaviani},
  year={2010}
}
This paper investigates the determinants of the compensation structure for brokers who advise customers regarding the suitability of …nancial products. Our model explains why brokers are commonly compensated indirectly through contingent commissions paid by product providers. While biasing the broker’s recommendation, commissions can enhance e¢ ciency by improving the broker’s incentives to acquire information. When customers are naive about the broker’s con‡ict of interest, product providers… CONTINUE READING
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