Self-Dealing and Compensation for Financial Advisors

Abstract

Recent legislative and regulatory activity related to investment advice in 401(k) plans has focused on the issue of self-dealing. In this paper, the authors develop a framework that addresses questions of self-dealing based on the direct-marketing model introduced by Inderst and Ottaviani (2009). They specifically adapt the model to the setting of 401(k) plan advice, extend the theoretical framework to consider the implications of financial literacy and discuss various key aspects of existing and proposed 401(k) advice legislation in the context of the model's predictions.