Conflicting Interests and the Effect of Fiduciary Duty: Evidence From Variable Annuities
- Type of resource
- Stanford (Calif.) : Stanford Institute for Theoretical Economics, 2020
- Digital origin
- born digital
- 1 online resource
- online resource
Also available at
Item belongs to a collection
Since 1989, Stanford University's Department of Economics has hosted a series of workshop sessions in economic theory and mathematical economics. This program is known as the Stanford Institute for Theoretical Economics (SITE). Its purpose is to advance economic science for the benefit of society and to support cutting-edge work of economic theorists within specialized areas of research. The SITE Archives documents the workshop proceedings over time. Access to the presented papers is available in cases where the original material was provided by the author(s). This portion of the archive includes records describing papers where a copy of the original material is preserved and accessible.
- Digital collection
- 3144 digital items
Variable annuities are a popular retirement product with over $2 trillion in assets. We study what drives variable annuity sales. Insurers typically pay brokers a commission/kickback for selling variable annuities that range from 0% to over 10% of investors’ premium payments. Our results indicate that variable annuity sales are about three times more sensitive to brokers’ financial interests than investors’. Brokers earn higher commissions by selling higher-fee products. To help limit conflicts of interest, the Department of Labor proposed a rule in 2016 that would hold brokers to a fiduciary standard when dealing with retirement accounts. We find that after the proposed fiduciary rule, the sales of high-fee variable annuities fell by 50% as sales became more sensitive to fees and insurers increased the relative availability of low-fee products. Based on our estimation of a structural model, investor welfare improved as a result of the DOL fiduciary rule under conservative assumptions.
- Presented at SITE on August 27, 2020
- Session series
- Financial Regulation
- Organizer of meeting:
- Matvos, Gregor, Seru, Amit
- The conference covers research that relates to connections of regulation for intermediaries, households, firms and policymakers. This is the fourth in the sequence of the annual SITE conference on this topic. Presentations, like every year, are "seminar" style. This year, each paper has been matched to a moderator who will guide the discussion rather than just relay the questions from the audience to the presenter.
- Stanford Institute for Theoretical Economics
- Use and reproduction
- This publication is open for research use. Copyright is retained by the author(s) or their heir(s).