As part of the series of the "Finance Research Seminar", VGSF welcomes Mark Egan from Harvard Business School to present his research paper.
Conflicting Interests and the Effect of Fiduciary Duty — Evidence from Variable Annuities
We examine the market for variable annuities, a popular retirement product with over $2.2 trillion in assets. Insurers pay brokers commissions for selling annuities, and brokers typically earn higher commissions for selling more expensive annuities. Our results indicate that sales are five times more sensitive to brokers’ financial interests than investors’. To limit conflicts of interest, the Department of Labor proposed a rule in 2016 holding brokers to a fiduciary standard. We find that after the proposal, sales of high-expense products fell by 52% as sales became more sensitive to expenses. Based on our structural estimates, investor welfare improved overall.