Does Regulatory Jurisdiction Affect the Quality of Investment-Adviser Regulation?
Ben Charoenwong, Alan Kwan, Tarik Umar
American Economic Review · 2019 · Volume 109 · Issue 10
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.
Keywords
Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies, Financial Institutions and Services: Government Policy and Regulation, Business and Securities Law, Economics of Regulation, Personal, Professional, and Business Services
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