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.