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American Economic Review Vol. 109 No. 10 2019

Does Regulatory Jurisdiction Affect the Quality of Investment-Adviser Regulation?

Ben Charoenwong1; Alan Kwan2; Tarik Umar3

1 National University of Singapore Business School, 15 Kent Ridge Drive #07-69, Singapore 119245 (email: ) · 2 Hong Kong University, K. K. Leung Building KK923, University Drive, Lung Fu Shan, Hong Kong (email: ) · 3 Rice University, McNair Hall 324, 1900 Rice Boulevard, Houston, TX 77005 (email: )

open access

Abstract

The Dodd-Frank Act shifted regulatory jurisdiction over “ midsize” investment advisers from the SEC to state-securities regulators. Client complaints against midsize advisers increased relative to those continuing under SEC oversight by 30 to 40 percent of the unconditional probability. Complaints increasingly cited fiduciary violations and rose more where state regulators had fewer resources. Advisers responding more to weaker oversight had past complaints, were located farther from regulators, faced less competition, had more conflicts of interest, and served primarily less-sophisticated clients. Our results inform optimal regulatory design in markets with informational asymmetries and search frictions.

DOI
10.1257/aer.20180412
Volume
109
Issue
10
Pages
3681-3712
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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