Tuesday, October 22, 2019 - 4:10pm to 5:45pm
Room 219, Flavelle Building, 78 Queen's Park


Manisha Padi
Berkeley Law School

Fiduciary Duty and the Market for Financial Advice 

Tuesday, October 22, 2019
4:10 - 5:45
Room FL219 (John Willis Classroom)
78 Queen's Park 

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 

Professor Manisha Padi studies the law and economics of consumer financial contracts at Berkeley Law School. Specifically, she is interested in how the legal treatment of individuals’ granular transactions have an aggregate impact on consumer welfare, financial institutions, and the economy as a whole. Padi’s work uses empirical methods to evaluate the role of consumer protection law, financial regulation, and retirement policy on consumers. Padi has a J.D. from Yale Law School and a Ph.D. in Economics from Massachusetts Institute of Technology. 

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