Retirement Plan Conflicts of Interest in Mutual Fund Management

Form ADV regulatory disclosures made by mutual fund management firms indicate that nearly one-third of investment advisers to mutual funds offer pension consulting services to defined contribution plans, creating inherent conflicts of interest that allow advisers to recommend their own affiliated funds to plan sponsors. Using the complete universe of Form ADV filings merged with CRSP mutual fund data, I examine how these retirement plan conflicts affect mutual fund portfolio management and performance over the period 2003 to 2014. In contrast to prior studies that relied on hand-collected plan-level data and focused on participant outcomes, this study provides fund-level evidence using comprehensive regulatory disclosures to assess how such conflicts affect managerial incentives. I found that equity mutual funds managed by conflicted advisers exhibited widespread underperformance and were managed to a significantly lesser extent, consistent with weakened incentives arising from sticky defined contribution assets. The effects were economically larger for target date mutual funds, which played a central role as default investment options in retirement plans. The results have important policy implications, suggesting that disclosure alone may be insufficient to mitigate conflicts of interest and highlighting the need for stronger fiduciary oversight and governance of plan menus, particularly for default investment options.