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Conflicting Interests and the Effect of Fiduciary Duty: Evidence from Variable Annuities

Author

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  • Mark Egan
  • Shan Ge
  • Johnny Tang

Abstract

We examine the variable annuity market to study conflicts of interest and the effect of fiduciary duty in brokerage markets. Insurers typically pay brokers higher commissions for selling more expensive annuities. Our results indicate that sales are four times as sensitive to brokers’ interests as to 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.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Mark Egan & Shan Ge & Johnny Tang, 2022. "Conflicting Interests and the Effect of Fiduciary Duty: Evidence from Variable Annuities," The Review of Financial Studies, Society for Financial Studies, vol. 35(12), pages 5334-5386.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:12:p:5334-5386.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac047
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    Cited by:

    1. Conrado Cuevas & Dan Bernhardt & Mario Sanclemente, 2023. "Followers of the pied piper of pensioners," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(4), pages 1517-1550, November.
    2. Bingzheng Chen & Zongxia Liang & Shunzhi Pang, 2024. "Dynamic Investment-Driven Insurance Pricing and Optimal Regulation," Papers 2410.18432, arXiv.org, revised Apr 2025.
    3. Shan Ge, 2022. "How Do Financial Constraints Affect Product Pricing? Evidence from Weather and Life Insurance Premiums," Journal of Finance, American Finance Association, vol. 77(1), pages 449-503, February.
    4. Zach Y. Brown & Mark L. Egan & Jihye Jeon & Chuqing Jin & Alex A. Wu, 2023. "Why Do Index Funds Have Market Power? Quantifying Frictions in the Index Fund Market," NBER Working Papers 31778, National Bureau of Economic Research, Inc.
    5. Bazley, William J. & Cici, Gjergji & Liao, Junchao, 2025. "Conflicts of interest among affiliated financial advisors in 401(k) plans: Implications for plan participants," CFR Working Papers 25-03, University of Cologne, Centre for Financial Research (CFR).
    6. Jason Allen & Robert Clark & Jean-François Houde & Shaoteng Li & Anna Trubnikova, 2025. "The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending," The Review of Financial Studies, Society for Financial Studies, vol. 38(11), pages 3284-3328.
    7. Li, Dongchen & Zeng, Yan & Zhao, Yixing, 2025. "The impact of intermediaries on insurance demand and pricing," Insurance: Mathematics and Economics, Elsevier, vol. 122(C), pages 143-156.
    8. Ralph S.J. Koijen & Motohiro Yogo, 2022. "The Fragility of Market Risk Insurance," Journal of Finance, American Finance Association, vol. 77(2), pages 815-862, April.
    9. de Bruin, Boudewijn & Cherednychenko, Olha & Hermes, Niels & Kramer, Marc & Meyer, Marco, 2024. "Demand for financial advice: Evidence from a randomized choice experiment," Journal of Banking & Finance, Elsevier, vol. 163(C).
    10. Vivek Bhattacharya & Gastón Illanes & Manisha Padi, 2025. "Fiduciary Duty and the Market for Financial Advice," Econometrica, Econometric Society, vol. 93(4), pages 1449-1480, July.
    11. Di Maggio, Marco & Egan, Mark & Franzoni, Francesco, 2022. "The value of intermediation in the stock market," Journal of Financial Economics, Elsevier, vol. 145(2), pages 208-233.
    12. Armantier, Olivier & Foncel, Jérôme & Treich, Nicolas, 2023. "Insurance and portfolio decisions: Two sides of the same coin?," Journal of Financial Economics, Elsevier, vol. 148(3), pages 201-219.

    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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