What Do Consumers’ Fund Flows Maximize? Evidence from their Brokers’ Incentives

Posted On November 22, 2017

April 9, 2010 – April 9, 2010

CEAR

RCB 1200 - from 2:00 – 3:30pm

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Regulators have worried since the early days of mutual funds that the advice of mutual-fund brokers is distorted by their incentives. We test for this distortion by relating the incentives arising from brokers’ affiliation and compensation to the flows passing through them. We find that flows through unaffiliated brokers bias toward the funds giving them more of the load, and also that these flows realize lower returns. We also find that affiliated brokers bring fund families both the benefits of recapturing outflows and the cost of cannibalizing inflows. Seminar_2010_0409_Musto