The Effect of Commission Bans on Household Wealth: Evidence from OECD Countries

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Abstract

Abstract In most OECD countries, financial advisors are primarily paid through commissions. This entails a principal agent problem in which the financial advisor has the incentive to sell financial products that maximize his income, not however the return of the investor seeking financial advice. To combat this conflict of interest, countries such as Denmark, Finland or Great Britain introduced ...

Abstract

Abstract
In most OECD countries, financial advisors are primarily paid through commissions. This entails a principal agent problem in which the financial advisor has the incentive to sell financial products that maximize his income, not however the return of the investor seeking financial advice. To combat this conflict of interest, countries such as Denmark, Finland or Great Britain introduced commission bans. Our research finds an annual return difference of household wealth between 1.5% to 2% with a sample period from 1997 to 2020 for OECD countries with commission ban versus OECD countries without. This implies that households in commission ban countries can have close to double the amount of wealth compared to household in non-commission ban countries after 40 years. The results support the introduction of commission bans to foster private household wealth formation.

Zusammenfassung
In den meisten OECD-Ländern werden Finanzberater über Provisionen vergütet. Dieses System führt zu einem Principal-Agenten-Problem, bei dem der Finanzberater einen Anreiz hat, Finanzprodukte zu verkaufen, die sein Einkommen maximieren, nicht jedoch die Rendite des Anlegers. Um diesen Interessenskonflikt aufzulösen, haben Länder wie Dänemark, Finnland oder Großbritannien Provisionsverbote eingeführt. Unsere Ergebnisse zeigen, dass zwischen 1997 und 2020 OECD-Länder mit Provisionsverbot eine 1,5% bis 2% höhere jährliche Rendite auf ihr Vermögen erreicht haben. Dies kann nahezu zu einer Verdopplung des Haushaltvermögens nach 40 Jahren führen. Somit sprechen die Ergebnisse für die Einführung von Provisionsverboten zur Förderung der Vermögensbildung privater Haushalte.