Who Should Regulate Financial Advisors? Evidence from Oversight in Dodd-Frank

, University of 黑料传送门 Booth 

Alan Kwan,

, University of 黑料传送门 Booth

We examine a regulatory change contained in the Dodd-Frank Act that shifted responsibility for overseeing mid-sized investment advisory firms ($25 - $100 million in assets under management) from the SEC to state regulators. Using a differences-in-differences identification strategy, we find that switching from the SEC to state regulators increases the probability of client complaints by 33% to 50%. Consistent with more misconduct rather than increased detection, we find that the effect is strongest among firms headquartered further from the relevant state regulator, and in firms whose branches face less competition. Misconduct does not increase significantly at firms whose clients are primarily institutional investors. The severity of complaints against affected advisors increases by $90,000 in alleged damages per incident