Consumers and financial advice
Consumer research to support the evaluation of the ban on commissions

Since 2013, commissions on complex and high impact financial products are banned. Financial advisers and intermediaries may no longer be compensated for the costs of advice and mediation through commissions, but must charge these costs directly to the customer. The intended purpose of the ban on commissions is to put the interests of the customer first. Increased transparency with regard to product versus advisory costs removes incentives for advisers and intermediaries that can lead to undesirable forms of steering towards a certain product or provider. At the same time, concerns have been expressed about the extent to which advice remains accessible to consumers as a result of the ban.

On behalf of the Dutch ministry of Finance, CentERdata has conducted a study to gain insight into the choice behaviour of consumers with respect to financial advice, and to examine whether this has changed as a result of the ban on commissions. In addition, the study investigated the role of the service provision document, a standard document that informs consumers about key aspects of the service that independent advisers are required to provide.  

Study methodology

The study consists of a mix of qualitative and quantitative research.

  • A focus group and online survey provide insight into the choice process with respect to financial advice of consumers who had recently purchased a complex financial product.
  • In an online experiment, we examined whether and how exposure to information about the costs of advice changed advice preferences of potential customers (consumers that have the intention to purchase a complex financial product, such as a mortgage, within the next five years).

Important findings

The results show that consumers are generally not well informed, neither about the current compensation system, nor about the former commissions system. As such, most consumers will not realize that something has actually changed. This does not mean, however, that the costs of advice themselves have not influence on the choices of consumers with respect to advice.

Figure 1. Types of advice including cost indication (Dutch)

Potential customers greatly underestimate the costs for financial advice. As a result, when consumers receive a clear overview of the different types of advice with corresponding typical costs (see Figure 1), they have a strong tendency to go for a cheaper form of advice than the type of advice they originally preferred, or even ask for no advice at all (execution-only, see Figure 2). Low financial literates, who seem to need the advice the most, are most inclined to not seek advice in that case.

Figure 2. Shift in preferences w.r.t. advice after exposure to cost information (Dutch)

These preferences of potential buyers are not reflected in actual choice behaviour of consumers who had recently purchased a complex financial product (mortgage, life insurance, or disability insurance), however. For only 2% of the recent buyers, high costs of advice were a reason to purchase the financial product without advice.

  • A possible explanation for this discrepancy is the limited comparison behaviour of consumers. This raises the question to what extent consumers can actually oversee the various possible channels and price differences in reality. Half of the recent buyers had only one exploratory meeting with an adviser.
  • Another possible explanation is that consumers who have the intention to purchase a product without advice are likely to change their mind once it becomes clearer what this actually entails. There thus seems to be a mechanism that “reverses” intentions that are formed on the basis of cost information.

The full report can be found here (in Dutch).


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