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Self-Dealing and Compensation for Financial Advisors

  • Joanne Yoong

    ()

  • Angela A. Hung

    ()

Recent legislative and regulatory activity related to investment advice in 401(k) plans has focused on the issue of self-dealing. In this paper, the authors develop a framework that addresses questions of self- dealing based on the direct-marketing model introduced by Inderst and Ottaviani (2009). They specically adapt the model to the setting of 401(k) plan advice, extend the theoretical framework to consider the implications of financial literacy and discuss various key aspects of existing and proposed 401(k) advice legislation in the context of the model's predictions.

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File URL: http://www.rand.org/content/dam/rand/pubs/working_papers/2009/RAND_WR713.pdf
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Paper provided by RAND Corporation in its series Working Papers with number 713.

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Length: 25 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:ran:wpaper:713
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  1. Alonso, Ricardo & Matouschek, Niko, 2005. "Optimal Delegation," CEPR Discussion Papers 5289, C.E.P.R. Discussion Papers.
  2. Wei-Lin Liu, 2005. "Motivating and Compensating Investment Advisors," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2317-2350, November.
  3. Krishna, Vijay & Morgan, John, 2004. "Contracting for Information under Imperfect Commitment," Competition Policy Center, Working Paper Series qt4010c6w9, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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  10. Hamid Mehran & Rene M. Stulz, 2006. "The Economics of Conflicts of Interest in Financial Institutions," NBER Working Papers 12695, National Bureau of Economic Research, Inc.
  11. Hackethal, Andreas & Haliassos, Michael & Jappelli, Tullio, 2012. "Financial advisors: A case of babysitters?," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 509-524.
  12. Sanford J Grossman & Oliver D Hart, 2001. "An Analysis of the Principal-Agent Problem," Levine's Working Paper Archive 391749000000000339, David K. Levine.
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  16. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
  17. Edwin J. Elton & Martin J. Gruber & Christopher R. Blake, 2003. "Incentive Fees and Mutual Funds," Journal of Finance, American Finance Association, vol. 58(2), pages 779-804, 04.
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  19. Golec, Joseph H., 1992. "Empirical Tests of a Principal-Agent Model of the Investor-Investment Advisor Relationship," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 81-95, March.
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