SAME BANKS AND SAME CLIENTS BUT DIFFERENT PRICING: HOW DO FLAT-FEES FOR MUTUAL FUNDS AFFECT RETAIL INVESTORS?

Using a field experiment at a German online brokerage, we investigate the effects of a flat-fee scheme versus a commission-based scheme for investments in mutual funds on the behaviour and outcomes of advised individual investors. In a difference-in-differences setting, we compare 699 clients that switched to the flat -fee scheme to one-on-one propensity-score-matched clients in the commission-based scheme. Flat fee switchers respond by improving portfolio efficiency through higher fund shares. Efficiency gains are not driven by potential cost savings for trading and holding mutual funds but by seeking and following financial advice more often. We find evidence that flat rates enhance the perceived quality of financial advice. This table presents a difference-in-difference analysis in event time for clients switching to the flat-fee scheme relative to a propensity-score-matched control group. We split the flat-fee scheme clients into clients who are likely (equal or above-median probability) and unlikely (below-median probability) to switch based on their predicted probability of switching derived from their demographics. Event Time is set to 1 after the switch to the flat-fee scheme and zero otherwise. Fee is 1 for all clients switching to the flat-fee scheme. Fee x Event Time is the interaction effect of the two. Panel A includes the regressions on portfolio allocation and advice usage. We report the Herfindahl-Hirschman Index (HHI), assuming that a mutual fund holds 100 securities; the unsystematic variance share from a 4-factor model; the share of active funds; and the number of talks per month. Panel B includes measures of portfolio performance and trading activity. We show the portfolio performance (4-factor alpha), the monthly portfolio turnover, and the monthly portfolio value in euros. Panels A and B report the results for the period from 12 months before and 12 months after the switch in event time. Panels C and D report the results of the same analyses as panels A and B but applied to 36 months before and after the switch. We use investor fixed effects. Standard errors are double-clustered on portfolio ID and month-by-year. ***, **, and * indicate that the coefficient estimates are significantly different from zero at the 1%, 5%, and 10% levels, respectively. This table presents a difference-in-differences analysis in event time for clients switching to the flat-fee scheme relative to a propensity-score-matched control group for an alternative dataset taken from a branch bank. Event Time is set to 1 after the switch to the flat-fee scheme and zero otherwise. Fee is 1 for all clients switching to the flat-fee scheme. Fee x Event Time is the interaction effect of the two. We report the Herfindahl-Hirschman Index (HHI), assuming that a mutual fund holds 100 securities; the share of actively managed mutual funds; the total value held in actively managed mutual funds in euros; the portfolio buy turnover; the portfolio turnover; and the portfolio value. We report the results for the period from 12 months before and 12 months after the switch in event time. We use investor fixed effects. Standard errors are double-clustered on portfolio ID and month-by-year. and that the are significantly different from at the 1%, 5%, and 10% respectively.