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

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 in...

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Bibliographic Details
Published in:The American economic review 2019-10, Vol.109 (10), p.3681-3712
Main Authors: Charoenwong, Ben, Kwan, Alan, Umar, Tarik
Format: Article
Language:English
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Summary: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.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20180412