Degrees of Intermediation

28 Pages Posted: 8 Jun 2015 Last revised: 8 Feb 2016

Date Written: February 6, 2016


In the complex modern financial system, individual investors rarely experience a clean, on-off choice between intermediation and disintermediation. Rather, retail investors must navigate a system presenting different degrees of intermediation, depending on the vehicle and transaction. Financial intermediaries vary according to whether they pool investments, whether they offer debt claims backed by one pool of investments, and whether they use actuarial modeling. Intermediaries with all three features offer the highest degree of intermediation.

The degree of intermediation of a given financial intermediary directly affects the risk-return calculus for investors. This article examines the welfare implications of different degrees of intermediation in the context of retirement savings. In general, financial intermediaries offering the highest degree of intermediation provide the greatest safeguards to retirement savers. However, the most protective of those intermediaries – defined benefit plans – are in limited supply. Fixed annuities offer many of the same benefits as defined benefit plans without the same constrictions in supply but suffer from low demand due to other issues that must be resolved in order to be a viable substitute.

Keywords: Financial intermediation, disintermediation, retirement, pensions, annuities

JEL Classification: D18, G20, G22, G23, J26

Suggested Citation

McCoy, Patricia Ann, Degrees of Intermediation (February 6, 2016). 50 Wake Forest Law Review 551 (2015). Available at SSRN:

Patricia Ann McCoy (Contact Author)

Boston College Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

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