Research

Work in Progress:

Uniform Rate-Setting and the Provision of Quality: Evidence from Financial Advisors 

Second-Year Paper

Why do Registered Investment Advisor firms frequently hire employees who have histories of financial misconduct? Using new data on rate schedules, I show that major firms charge nearly uniform rates across wealth levels, creating substantial differences in revenue per client. I document that misconduct is less prevalent in branches located in high-wealth zip codes than middle-wealth ones, where per-client revenues are lower. A dynamic model of firm quality choice rationalizes these patterns: firms optimally substitute toward lower-cost, lower-quality advisors in less profitable markets. I estimate the model and use it to explore counterfactual competition scenarios. Absent competitive pressure, the share of employees with clean records in the average market would drop from 85% to 79%.