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K-State Today

February 3, 2017



Journal of Financial Research selects finance professor's paper as 2016 Outstanding Article

By Brent Fritzemeier

Kansas State University assistant professor of finance Sabuhi Sardarli's study, "Investment Fees, Net Returns, and Conflicts of Interest in 401(k) Plans," was chosen for the 2016 Outstanding Article award by the Journal of Financial Research.

The Journal of Financial Research is a quarterly academic journal devoted to publication of original scholarly research across all major areas of finance. Sardarli's paper, which was co-authored by Thomas Doellman of Saint Louis University, will be recognized on the back cover of an upcoming journal issue.

The study used a proprietary database of almost 7,000 predominantly small to mid-size 401(k) plans administered by nearly 400 unique third-party plan administrators, or TPAs, to examine the potential effects of a conflict of interest that arises from the TPA's incentive to recommend its funds for the investment menu. The researchers found that investment fees are highest and net returns are lowest for plans administered by asset management advisory firms, commercial banks and insurance companies. The higher fees and lower returns are related to the existence of TPA proprietary funds in these plans' menus and to proxies for agency conflicts capturing proprietary trading and revenue sharing.

The findings in this study contribute to the broader 401(k) literature on plan design, participant allocation decisions, and plan sponsor, and specifically to the limited literature on agency conflicts in the 401(k) industry. The issues explored also relate to the broader financial literature on conflicts of interest in corporate decision making, asset management, and financial intermediation. The findings of this study highlight the need for future policy to target education of retirement plan sponsors.