Li, Yixuan;
(2025)
Financial Advisor, Private Incentives,
and Conflict Uncertainty.
Masters thesis (M.Phil), UCL (University College London).
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Abstract
This thesis examines how a monopolistic financial advisor with conflicts of interest chooses the precision of information sold to a client when that precision is unveri- fiable. A two-stage game is developed with an informed advisor, a client, a market maker and a noise trader in a modified Kyle (1985) framework, trading a single binary-valued asset. The advisor earns revenue from both the sale of a signal to the client and from a separate service line whose payoff relates to the asset and may move with or against the client’s trade. Two scenarios are analysed. In Scenario 1 the advisor observes the magnitude and direction of the conflict when pricing the signal. Either the equilibrium fee and signal precision are made contingent on conflict size, or a single fee and signal distribution is offered that does not vary with conflict. Revealing the conflict does not guarantee full information, as it discloses only the relative, not absolute, scale of the private benefit. In Scenario 2 the advisor prices using only a distribution of the conflict, but observes the realisation when supplying the signal. Because the realised conflict can help or hurt the advisor’s outside payoff, uncertainty dilutes the incentive to manipulate and changes the trade-off between precision revenue and the outside payoff. Multiple equilibria arise, including pooled-fee outcomes in which realised precision may be the same across conflict states or state-dependent. Over relevant parameter ranges this yields a non-monotonic relationship between conflict and realised precision, so larger conflict does not always degrade advice quality. The thesis extends discussion of biased advisors in informed trading models. Policy implications for disclosure and monitoring conflicts are also explored.
| Type: | Thesis (Masters) |
|---|---|
| Qualification: | M.Phil |
| Title: | Financial Advisor, Private Incentives, and Conflict Uncertainty |
| Open access status: | An open access version is available from UCL Discovery |
| Language: | English |
| Additional information: | Copyright © The Author 2025. Original content in this thesis is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International (CC BY-NC 4.0) Licence (https://creativecommons.org/licenses/by-nc/4.0/). Any third-party copyright material present remains the property of its respective owner(s) and is licensed under its existing terms. Access may initially be restricted at the author’s request. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10215008 |
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