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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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Paper provided by RAND Corporation Publications Department 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. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, vol. 58(5), pages 2059-2086, October.
  2. Ricardo Alonso & Niko Matouschek, 2008. "Optimal Delegation," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 259-293.
  3. Guido Palazzo & Lena Rethel, 2008. "Conflicts of Interest in Financial Intermediation," Journal of Business Ethics, Springer, vol. 81(1), pages 193-207, August.
  4. Golec, Joseph & Starks, Laura, 2004. "Performance fee contract change and mutual fund risk," Journal of Financial Economics, Elsevier, vol. 73(1), pages 93-118, July.
  5. Mehran, Hamid & Stulz, Rene M., 2006. "The Economics of Conflicts of Interest in Financial Institutions," Working Paper Series 2006-21, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  6. Bruno Biais & Laurent Germain, 2002. "Incentive-Compatible Contracts for the Sale of Information," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 987-1003.
  7. Hackethal, Andreas & Haliassos, Michalis & Jappelli, Tullio, 2009. "Financial Advisors: A Case of Babysitters?," CEPR Discussion Papers 7235, C.E.P.R. Discussion Papers.
  8. 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.
  9. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  10. Bolton, Patrick & Freixas, Xavier & Shapiro, Joel, 2007. "Conflicts of interest, information provision, and competition in the financial services industry," Journal of Financial Economics, Elsevier, vol. 85(2), pages 297-330, August.
  11. Wei-Lin Liu, 2005. "Motivating and Compensating Investment Advisors," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2317-2350, November.
  12. Sanford J Grossman & Oliver D Hart, 2001. "An Analysis of the Principal-Agent Problem," Levine's Working Paper Archive 391749000000000339, David K. Levine.
  13. 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.
  14. 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.
  15. 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.
  16. Daniel N. Deli, 2002. "Mutual Fund Advisory Contracts: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 57(1), pages 109-133, 02.
  17. Roman Inderst & Marco Ottaviani, 2009. "Misselling through Agents," American Economic Review, American Economic Association, vol. 99(3), pages 883-908, June.
  18. Jeffrey L. Coles & Jose Suay & Denise Woodbury, 2000. "Fund Advisor Compensation in Closed-End Funds," Journal of Finance, American Finance Association, vol. 55(3), pages 1385-1414, 06.
  19. Paul G. Mahoney, 2004. "Manager-Investor Conflicts in Mutual Funds," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 161-182, Spring.
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