Does Regulatory Jurisdiction Affect the Quality of Investment-Adviser Regulation?
- American Economic Review (Forthcoming)
The Dodd-Frank Act shifted regulatory jurisdiction over “mid-size” investment
advisers from the SEC to state-securities regulators. Client complaints
against mid-size advisers increased relative to those continuing under SEC
oversight by 30%-40% 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.
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