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

Abstract

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.

The value of personal professional financial advice to clients: A systematic quantitative literature review

“…Administrative burden and improving efficiency through the use of financial technology are discussed primarily in GGL and NGGL, together with government and the profession's concerns about accessibility of advice and value for money (e.g., Fidelity International, 2020). Regulation has also impacted remuneration structures for advisers/advice businesses with PAL and AL examining incentives for misaligned advice (e.g., Šindelár & Budinský, 2019). Remuneration is also linked to quality, accessibility and value for money advice in GGL and NGGL (e.g., ASIC, 2014).…”

Macroeconomic Factors and Capital Markets. Selected Experiences in Central and Eastern Europe

“…It is considered that there are linkages between macroeconomic variables and stock prices (Celebi & Honig, 2019;Horobeț & Dumitrescu, 2009). Other influencers of capital markets, such as the investment behavior, are identified by the literature (Ferreira, Keswani, Miguel, & Ramos, 2012;Filip, 2018;Sindelar & Budinski, 2019) emphasizing the importance of knowledge when deciding on complex aspects in the analyzed region (Vătămănescu, Pînzaru, Andrei, & Zbuchea, 2016: Vătămănescu, Gazzola, Dincă, & Pezzetti, 2017. The present study considers and analyzes as macroeconomic factors the following: population, GDP/capita, inflation, unemployment, and savings -as a percentage of GDP.…”