Agent-Principal Problem in Financial Distribution

Šindelář, Jiří; Budinský, Petr

doi:10.18267/j.polek.1208

Cited by 1 publication

(2 citation statements)

References 19 publications

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“…Chasing of (past) returns as observed by Li (2015) is not induced by commission remuneration on the target market. In comparison with the authors’ previous research in this field (Šindelář and Budinský, 2017; Šindelář and Budinský, 2018), which used a panel of experts as a means of evaluating the quality of advice, this study provided mostly compatible results. The greatest risk was found to reside in the pool and flat organisations.…”

Section: Discussionsupporting

confidence: 52%

“…These represent the most frequently contracted investment funds on the target market, thus securing representativeness, but omit possible alternatives – ETFs, derivatives and more exotic assets. Most misspelling problems on the target market were related the investment insurance, which was not incorporated into this analysis, but surveyed separatedly (Šindelář and Budinský, 2018 for details). Finally, due to the setting of our study, we were only able to cover the period of 2013-2018, essentially the “good times” in the region´s economy.…”

Section: Discussionmentioning

confidence: 99%

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Does commission remuneration affect the investor’s outcome? Experience from Central Europe

Šindelář

Budinský

2019

JFRC

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Purpose This paper aims to deal with the conflict of interest in the area of investment advice, rewarded through the commission mechanism. Using a substantial data set on sales of independent agents, the authors have examined the relationship between the amount of commission paid to the agent and the subsequent performance of the client’s portfolio (annualised five-year returns, volatility and total expenses ratio). Design/methodology/approach The main working method consisted of linear model with mixed effects. Processing total amount of 2,066 advised sales from, the authors were able to examine not only the general level of aforementioned relationship but also the effect of different organisational environments, ranging from multi-level marketing (MLM), pool to flat structures. Findings Contrary to general expectations, the authors have found that investment advisers do recommend products with generally higher costs and volatility, but in the MLM networks, they are at the same time able to generate significantly higher returns on recommended funds. Research limitations/implications Due to the setting of this study, the authors were only able to cover the vital period of 2007-2018, mostly the “good times” in the region’s economy. Such limitation represents guideline for further longitudinal research, which will be followed in the next analytical steps. Practical implications The results are of interest both to policymakers and final consumers. The first group can better adjust rules in the inducements and advice area, to stimulate shift in different organisational environments. Clients, on the other hand, receive additional guidance on which types of companies generally offer the most beneficial advice. Originality/value Although research on advice and conflict of interest is prevalent, the meta-analysis shows that only few authors were able to quantitatively disseminate the relationship between remuneration of advisor and subsequent utility of the client. The findings are unique in this regard, bringing statistically conclusive results from region of Central Europe, where advice represents one of the principal distribution channels.

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Section: Discussionsupporting

confidence: 52%

Section: Discussionmentioning

confidence: 99%