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

William J. Bazley, Gjergji Cici and Junchao Liao

No 25-03, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

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.

Keywords: 401(k) plans; financial advisors; conflicts of interest; recordkeepers (search for similar items in EconPapers)
JEL-codes: G10 G11 J32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:319066

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