The Role of Governance in Retirement Investments: Evidence from Variable Annuities

Richard Evans and Ruediger Fahlenbrach
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Richard Evans: Darden School of Business at the University of Virginia

Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research

Abstract: We study the relative importance of market governance and non-market governance in retirement investments using a sample of variable annuities. Variable annuity investors are significantly less sensitive to performance and fees than mutual fund investors. Consistent with a complementary role of market and non-market governance, other governance mechanisms play a stronger role for variable annuity funds. Variable annuity sponsors add alternative investment options and replace advisors on behalf of their investors after poor performance and high fees. These other governance mechanisms are ineffective, however, whenever conflicts of interest exist between variable annuity sponsors and fund advisors.

Pages: 40 pages
Date: 2007-07, Revised 2007-10
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