Understanding the Incentives of Commissions Motivated Agents: Theory and Evidence from the Indian Life Insurance Market

Anagol, Santosh; Cole, Shawn; Sarkar, Shayak

doi:10.2139/ssrn.1978876

Cited by 50 publications

(49 citation statements)

References 21 publications

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“…Other financial mistakes discussed in the literature include purchasing whole life insurance rather than a cheaper combination of term life insurance in conjunction with a savings account (Anagol et al 2012); simultaneously holding high-interest credit card debt and low-interest checking account balances (Gross & Souleles 2002); holding taxable assets in taxable accounts and non-taxable or tax-preferred assets in tax-deferred accounts (Bergstresser & Poterba 2004, Barber & Odean 2003); paying down a mortgage faster than the amortization schedule requires while failing to contribute to a matched tax-deferred savings account (Amromin et al 2007); and borrowing from a payday lender when cheaper sources of credit are available (Agarwal et al 2009b). …”

Section: What Is Finanical Literacy and Why Is It Important?mentioning

confidence: 99%

Financial Literacy, Financial Education, and Economic Outcomes

2013

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In this article we review the literature on financial literacy, financial education, and consumer financial outcomes. We consider how financial literacy is measured in the current literature, and examine how well the existing literature addresses whether financial education improves financial literacy or personal financial outcomes. We discuss the extent to which a competitive market provides incentives for firms to educate consumers or offer products that facilitate informed choice. We review the literature on alternative policies to improve financial outcomes, and compare the evidence to evidence on the efficacy and cost of financial education. Finally, we discuss directions for future research.

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Section: What Is Finanical Literacy and Why Is It Important?mentioning

confidence: 99%

Financial Literacy, Financial Education, and Economic Outcomes

2013

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“…16 In essence, SEBI argue that entry loads are a shrouded fee in the sense of Gabaix and Laibson (2006), Koszegi et al (2012), Anagol and Kim (2012).…”

Section: Mutual Fund Flows and Commissionsmentioning

confidence: 99%

“…There is also a longstanding policy debate in the United States on whether mutual funds should be allowed to charge a separate class of operating expenses, known as 12b-1 fees, specifically for the purpose of paying distribution expenses such as broker commissions (Ferris and Chance (1987), Walsh (2005)). 2 Commissions bans are motivated by the idea that commissions influence brokers to sell products that are not necessarily in line with the interest of their customers (Anagol et al (2012), Mullainathan et al (2012)). Policymakers hope that by eliminating commissions, investors will be more likely to directly pay for financial advice, and become more aware about how brokers are compensated.…”

Section: Introductionmentioning

confidence: 99%

Distribution Fees and Mutual Fund Flows: Evidence from a Natural Experiment in the Indian Mutual Funds Market

et al. 2013

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Mutual fund companies typically charge investors distribution fees, such as 12b-1 fees in the United States, which they then use to pay commissions to brokers. We evaluate a major Indian investor protection reform that limited the ability of mutual funds to charge distribution fees to pay broker commissions. We identify the impact of this policy change by comparing funds charging high distribution fees prior to the reform to those charging low distribution fees; we show that trends in asset growth across these groups prior to the reform were similar, and argue that a comparison of their asset growth after the reform is indicative of the policy impact. Contrary to claims by industry that banning distribution fees would dramatically reduce investment in mutual funds, we find no evidence that the post-reform asset growth was lower for funds charging higher distribution fees prior to the reform. We primarily find that asset growth in funds with previously high distribution fees was higher after the policy change. At the aggregate level, our results suggest that Indian mutual fund growth in the post-policy period was lower for reasons independent of this policy change, such as a general move away from mutual funds towards real assets such as gold and real estate following the 2008 financial crisis.

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“…In India, there have been several instances of mis-selling by insurance companies and mutual funds (Anagol and Kim 2012;Anagol, Cole, and Sarkar 2012;Anagol et al 2013). The response in the case of mutual funds has been to ban upfront commissions as early as 2009.…”

Section: Introductionmentioning

confidence: 99%

The case of the missing billions: estimating losses to customers due to mis-sold life insurance policies

Halan¹,

Sane

Thomas

2014

Journal of Economic Policy Reform

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Regulation of retail finance has been the subject of policy interventions in several countries, including India. Much of the regulatory change in India has been carried out with little support of empirical evidence. This paper is motivated by questions of the evidence of losses due to mis-sales of financial products. It constructs two measures of the loss to customers due to mis-selling of life insurance policies. The first is calculated using the value of lapsed policies, and the second uses the persistence of premium payments. Both arrive at estimates of around USD 28 billion lost between 2004 and 2011.

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Understanding the Incentives of Commissions Motivated Agents: Theory and Evidence from the Indian Life Insurance Market

Cited by 50 publications

References 21 publications

Financial Literacy, Financial Education, and Economic Outcomes

Financial Literacy, Financial Education, and Economic Outcomes

Distribution Fees and Mutual Fund Flows: Evidence from a Natural Experiment in the Indian Mutual Funds Market

The case of the missing billions: estimating losses to customers due to mis-sold life insurance policies

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