Retirement Research: Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations

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Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations

Abstract: The researchers examine the effects of a 2012 regulatory reform that mandated fee and performance disclosures for the investment options in 401(k) plans. The researchers show that participants became significantly more attentive to expense ratios and short-term performance after the reform. The disclosure effects are stronger among plans with large average contributions per participant and weaker for plans with many investment options. 

Additionally, these results are not driven by secular changes in investor behavior or sponsor-initiated changes to the investment menus. The researchers’ findings suggest that providing salient fee and performance information can mitigate participants' inertia in retirement plans. 

Read Out of Sight No More? The Effect of Fee Disclosures on 401(K) Investment Allocations

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

Abstract: The researchers examine the drivers of variable annuity sales and the impact of a proposed regulatory change. Variable annuities are popular retirement products with over $2 trillion in assets in the United States. Insurers typically pay brokers a commission for selling variable annuities that ranges from 0% to over 10% of investors' premium payments.  Brokers earn higher commissions for selling inferior annuities, in terms of higher expenses and more ex-post complaints. 

The researchers’ results indicate that variable annuity sales are roughly six times more sensitive to brokers' financial interests than investors'. 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. The researchers find that after the proposed fiduciary rule, the sales of high-expense variable annuities fell by 52% as sales became more sensitive to expenses and insurers increased the relative availability of low-expense products. Based on the researchers’ structural model estimates, investor welfare improved as a result of the fiduciary rule under conservative assumptions. 

Read Conflicting Interests and the Effect of Fiduciary Duty — Evidence from Variable Annuities.

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