The effect of advisors' incentives on clients' investments

Battiston, Diego, Blanes I Vidal, Jordi ORCID: 0009-0002-9237-2049, Hortala-Vallve, Rafael ORCID: 0000-0002-9677-497X and Lou, Dong ORCID: 0000-0002-5623-4338 (2025) The effect of advisors' incentives on clients' investments. Journal of Finance. ISSN 0022-1082 (In Press)

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Abstract

We use granular data from an investment firm and a credible identification strategy to estimate the effect of financial advisors’ incentives on client investments. Exploiting a natural experiment triggered by the 2018 implementation of MiFID II, we find that clients’ investments respond strongly to changes in advisor incentives. Advisors react through multiple mechanisms: (a) inducing existing clients to bring in new money, (b) channeling it to high-incentive funds, and (c) attracting more new clients. We also find that the MiFID II reform generated more balanced incentives, which translated into higher portfolio efficiency through both lower average fees and stronger portfolio diversification.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Management Government Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving I - Health, Education, and Welfare > I2 - Education > I23 - Higher Education Research Institutions J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
Date Deposited:	04 Aug 2025 15:15
Last Modified:	04 Aug 2025 15:21
URI:	http://eprints.lse.ac.uk/id/eprint/129027

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