Can we make trading less hazardous to investors’ wealth? Evidence from a choice between flat rates or commissions for financial services*

We exploit a real-world setting at a German brokerage where some investors are forced to choose between two pricing schemes for trading and holding mutual funds: a flat-rate versus commissions (pay-per-use, via front-end loads and annual fees). Advisors provide a tariff recommendation based on clients’ potential cost savings. Most clients follow this recommendation; still, 41% fail to choose the cost-beneficial scheme, and 83% of them exhibit a pay-per-use bias. Biased choices are partly related to the underestimation of trading costs and expectation-based loss aversion. Our results bear implications for designing pricing schemes in the financial industry.