Fiduciary Duty, Financial Regulation, and the Market for Retirement Products

Project: Research project

Project Details


Unlike standard goods markets, the market for retirement investment products is often directly affected by parties other than buyers and sellers. For example, when individuals purchase investment vehicles, they often engage with brokers or investment advisers. When workers save for retirement through 401(k) plans, the set of funds available to them (and the fees they pay) depends on their employer. The broad goal of this proposal is to study the effects of regulation that directly targets these intermediaries. The PIs propose three projects to address this question. The first two focus on the effects of fiduciary duty, a legal standard that a financial adviser must act in the best interest of her customers. This question is directly policy-relevant, as the Department of Labor has proposed to extend fiduciary duty to all advisors selling retirement products in the United States. There is much debate over whether fiduciary duty would influence the set of products sold at all or whether it simply restricts access to retirement products by increasing regulatory costs. There is scant evidence informing this debate, likely because of a lack of useful data. In the first project, the PIs leverage a novel transaction-level dataset of all financial products sold by a major financial services provider to study the effect of imposing fiduciary duty on the types of products consumers select, the fees consumer pays, and on the number of advisers in the market. To do so, they use a differences-in-differences approach, leveraging cross-advisor type and cross-state variation in fiduciary standards. The second project expands this analysis into a structural discrete choice model with financial advice, in order to unpack the reduced-form effects, simulate counterfactuals where fiduciary duty is expanded to all advisers, and compute the welfare effects of the DOL rule. Since advice is common in many markets(real estate, medicine, etc.), an additional goal is to provide a general framework for discrete choice models with advice and careful analysis of how data can help uncover the cost of distorting advice. Finally, the third project shifts focus to defined contribution plans. A key feature of these plans is that set of funds available to workers is negotiated by the employer and plan providers. Many defined contribution plans have come under criticism for offering narrow sets of funds, and the PIs plan on studying the consquences of regulation designed to expand or improve this set of funds. Secondly, the PIs plan to study the distributional consquences of a system in which retirement options depend on the employer: smaller employers may well have especially narrow plans. In particular, the authors aim to consider alternative regulatory regimes, such as banning discrimination (in terms of prices, fund offerings, or both) across employers by fund providers, while taking into account that such reforms would likely alter the equilibrium set of fees and offered funds.
Effective start/end date9/1/188/31/22


  • National Science Foundation (SES-1824463)


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