Prof. Dr. Marten Laudi

Abstract

Despite growing regulatory concerns about potential overcharging of sustainable investors, empirical evidence is lacking. In two controlled laboratory-in-the-field experiments with 415 professional financial advisors from Europe and the United States and an incentivized survey, we identify two distinct but interacting effects. First, advisors charge sustainable investors a premium. This premium persists even when accounting for differences in skill, effort, and costs. Second, advisors impose higher fees on clients with low financial literacy. These factors interact. Sustainable investors with low financial literacy are charged the highest fee, whereas those with high financial literacy do not pay a sustainability premium. Our findings suggest that advisors extract additional fees for sustainable investment mandates but avoid overcharging sustainable investors with high financial literacy.

Abstract

We conduct a large-scale survey experiment with clients of a major German retail bank to examine whether the temporal framing of a tax stimulus as a permanent positive income shock affects consumption behavior. The income shock derives from the abolishment of the German solidarity surcharge on personal income taxes. Participants are randomly assigned to receive information about their additional disposable income in one of three formats: Euros per month (control), Euros per year (yearly treatment), or Euros per ten-year period (10-yearly treatment). We survey participants before the abolishment of the solidarity surcharge and find a statistically and economically significant impact of temporal framing on the intended use of the tax cut. The yearly and 10-yearly treatment groups’ average intended share of the tax cut for spending is 8.0 and 9.4 percentage points lower and for saving is 5.4 and 6.3 percentage points higher compared to the control group. A follow-up survey, six months after the tax rebate came into effect, reveals that participants largely adhered to their intentions, unless the increase in disposable income was diminished by other regulation changes. Those exposed to the yearly and 10-yearly treatments report having spent 7.0 and 8.4 percentage points less and report having saved 7.7 and 8.2 percentage points more relative to the control group. Treatment effects are particularly pronounced for larger tax cuts and among participants with low financial literacy and low cognitive reflection, who are more susceptible to the temporal framing of the rebate.