We present a model of the market for advice in which advisers have conflicts of
interest and compete for heterogeneous customers through information provision. The
competitive equilibrium features information dispersion and partial disclosure. While
conflicted fees lead to distorted information, they are irrelevant for customers’ welfare:
banning conflicted fees only improves the information quality, not customers’ welfare.
Instead, financial literacy education for the least informed customers can improve all
customers’ welfare, because of a spillover effect. Furthermore, although distorted information
leads to lower returns, investors find it optimal to trade through advisers,
which rationalizes empirical findings.