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Conflicts of interest among affiliated financial advisors in 401(k) plans: Implications for plan participants

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Listed:
  • Bazley, William J.
  • Cici, Gjergji
  • Liao, Junchao

Abstract

Certain institutional features of 401(k) plans can create conflicts of interest between plan participants and financial advisors that advise them. We study one such conflict: when advisors are affiliated with the plan's recordkeeper. Using a large dataset of 401(k) plans, we find that affiliated advisors reduce investment performance of participants by steering their flows to proprietary funds. We observe no similar effects for unaffiliated advisors. Furthermore, affiliated advisors do not significantly improve participation rates, lower administrative fees, or increase diversification. Given the increasing prevalence of advisors within 401(k) plans, our findings have relevant implications for households, plan sponsors, and policymakers.

Suggested Citation

  • 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).
    • Handle: RePEc:zbw:cfrwps:319066
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    More about this item

    Keywords

    401(k) plans; financial advisors; conflicts of interest; recordkeepers;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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