Fiduciary Duty and the Market for Financial Advice
Fiduciary duty may combat principal-agent problems in the provision of financial advice, but it may also impose costs through legal liability. We study the effects of fiduciary duty on the deferred annuity market using transaction-level data. Leveraging state-level variation in common law fiduciary duty, we find that it raises risk-adjusted returns by 25 bp without decreasing transacted volume. We develop a model of entry and advice provision, which shows that fiduciary duty operates by directly constraining low-quality advice rather than by solely increasing compliance costs. Overall, results suggest that expanding fiduciary duty would improve investor welfare.
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Document Object Identifier (DOI): 10.3386/w25861