Fiduciary Duty and the Market for Financial Advice

73 Pages Posted: 8 Nov 2018 Last revised: 6 May 2019

See all articles by Vivek Bhattacharya

Vivek Bhattacharya

Northwestern University

Gaston Illanes

Northwestern University

Manisha Padi

University of California, Berkeley - School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2019


Recent regulatory debate in the financial advice industry has focused on expanding fiduciary duties to broker-dealers. Proponents of this reform argue that it would improve the advice given to clients and limit losses from agency problems, while detractors counter that such regulation would increase compliance costs without directly improving consumer outcomes. This paper evaluates these claims empirically, using a transactions-level dataset for annuity sales from a major financial services provider and exploiting state-level variation in common law fiduciary duty. We find that imposing fiduciary duty on broker-dealers shifts the set of products they sell to consumers, away from variable annuities and towards fixed indexed annuities. Within variable annuities, fiduciary duty induces a shift towards lower-fee, higher-return annuities with a wider array of investment options. We develop a model that leverages the distributional changes in products sold to test the mechanism by which fiduciary duty operates. We find evidence that fiduciary duty does not solely increase the cost of doing business, but that it has the intended effect of directly improving financial advice.

Keywords: fiduciary duty, financial regulation, financial advice, retirement markets, annuities

JEL Classification: G23, G28, K15, L51, L84

Suggested Citation

Bhattacharya, Vivek and Illanes, Gaston and Padi, Manisha, Fiduciary Duty and the Market for Financial Advice (May 1, 2019). Sixth Annual Conference on Financial Market Regulation, Available at SSRN: or

Vivek Bhattacharya (Contact Author)

Northwestern University ( email )

Gaston Illanes

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Manisha Padi

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

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