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Best Buys and Own Brands: Investment Platforms’ Recommendations of Mutual Funds
[Understanding the advice of commissions-motivated agents: Evidence from the Indian life insurance market]

Author

Listed:
  • Gordon Cookson
  • Tim Jenkinson
  • Howard Jones
  • Jose Vicente Martinez

Abstract

Individuals increasingly buy mutual funds via online platforms, whose “best-buy” recommendations heavily influence flows. As intermediaries of mutual funds, platforms provide none of the unobservable interaction or intangible benefits of brokers, and so allow clean tests of the determinants, influence, and value of their fund recommendations. Using unique U.K. data, we find that platforms favor “own-brand” funds and those paying them a higher commission share. Investors discount own-brand recommendations, but not those paying high commission shares (which were not observable in the United Kingdom). A regulatory ban on commission sharing lowered costs and improved the informativeness of platform recommendations.

Suggested Citation

  • Gordon Cookson & Tim Jenkinson & Howard Jones & Jose Vicente Martinez, 2021. "Best Buys and Own Brands: Investment Platforms’ Recommendations of Mutual Funds [Understanding the advice of commissions-motivated agents: Evidence from the Indian life insurance market]," The Review of Financial Studies, Society for Financial Studies, vol. 34(1), pages 227-263.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:1:p:227-263.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa057
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    Citations

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    Cited by:

    1. Bjarne Florentsen & Ulf Nielsson & Peter Raahauge & Jesper Rangvid, 2022. "How Important is Affiliation Between Mutual Funds and Distributors for Fund Flows? [Is unbiased financial advice to retail investors sufficient? Answers from a large field study]," Review of Finance, European Finance Association, vol. 26(4), pages 971-1009.
    2. You, Yu & Yu, Zongdai & Zhang, Wenqiao & Lu, Lei, 2023. "FinTech platforms and mutual fund markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 84(C).
    3. Ruiqi Rich Zhu & Cheng He & Yu Jeffrey Hu, 2023. "The Effect of Product Recommendations on Online Investor Behaviors," Papers 2303.14263, arXiv.org, revised Nov 2023.

    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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