Abstract

Recent regulatory debate in the financial advice industry has focused on expanding fiduciary duties to broker-dealers. Proponents of this reform argue that it would improve the advice given to clients and limit losses from agency problems, while detractors counter that such regulation would increase compliance costs without directly improving consumer outcomes. This paper evaluates these questions empirically, using a transactions-level dataset for annuity sales from a major financial services provider and exploiting state-level variation in common law fiduciary duty. We find that fiduciary duty shifts the set of products chosen by consumers, away from variable annuities and towards fixed indexed annuities. Within variable annuities, fiduciary duty induces a shift towards lower-fee, higher-return annuities with a wider array of investment options. Finally, fiduciary duty induces exit of firms directly influenced by the regulation. We find almost no spillover effects—either on entry or on advice provided—onto advisers who are not directly impacted by the regulation. We develop a model that leverages the distributional changes in product sold in the market to argue that fiduciary duty operates through the intended mechanism of directly influencing advice.