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

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Abstract/Contents

Abstract: Variable annuities are a popular retirement product with over $2 trillion in assets. We study what drives variable annuity sales. Insurers typically pay brokers a commission/kickback for selling variable annuities that range from 0% to over 10% of investors’ premium payments. Our results indicate that variable annuity sales are about three times more sensitive to brokers’ financial interests than investors’. Brokers earn higher commissions by selling higher-fee products. To help limit conflicts of interest, the Department of Labor proposed a rule in 2016 that would hold brokers to a fiduciary standard when dealing with retirement accounts. We find that after the proposed fiduciary rule, the sales of high-fee variable annuities fell by 50% as sales became more sensitive to fees and insurers increased the relative availability of low-fee products. Based on our estimation of a structural model, investor welfare improved as a result of the DOL fiduciary rule under conservative assumptions.

Type of resource	text
Form	online resource
Extent	1 online resource
Place	Stanford (Calif.)
Publisher	Stanford Institute for Theoretical Economics
Publication date	2020
Language	English
Digital origin	born digital

Subject	Variable annuity
Subject	Brokers
Subject	Conflict of interests
Subject	Fiduciary duty
Genre	Conference papers and proceedings

Note	Presented at SITE on August 27, 2020
Session series	Title Financial Regulation
Session	Organizer of meeting Matvos, Gregor Seru, Amit Abstract The conference covers research that relates to connections of regulation for intermediaries, households, firms and policymakers. This is the fourth in the sequence of the annual SITE conference on this topic. Presentations, like every year, are "seminar" style. This year, each paper has been matched to a moderator who will guide the discussion rather than just relay the questions from the audience to the presenter.
Location	https://purl.stanford.edu/gx143xp9159
Repository	Stanford Institute for Theoretical Economics

Use and reproduction: This publication is open for research use. Copyright is retained by the author(s) or their heir(s).

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