Fiduciary Financial Advisers and the Incoherence of a 'High-Quality Low-Fee' Safe Harbor

28 Pages Posted: 19 Sep 2015 Last revised: 25 Nov 2015

See all articles by Max M. Schanzenbach

Max M. Schanzenbach

Northwestern University - Pritzker School of Law

Robert H. Sitkoff

Harvard University - Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: September 16, 2015


Americans now hold trillions of dollars in individual retirement savings accounts. Concerned about conflicts of interest among financial advisers who provide advice to retirement savers, the Department of Labor has proposed imposing fiduciary status and a "best interest" standard on such advisers. To ameliorate the resulting compliance costs, the DOL has also raised the possibility of a safe harbor for certain "high-quality low-fee investments." However, the notion of a "high-quality" investment is in irreconcilable tension with the highly individualized assessment of risk and return that is required by modern portfolio theory, the well-accepted concept from financial economics that has been codified in the "prudent investor rule" as the standard of care for fiduciary investment. This policy incoherence is worrisome because of the potential for the safe harbor to swallow the best interest standard.

Keywords: fiduciary, fiduciary investment, prudent investor rule, Department of Labor, retirement account, pension account, ERISA, best interest, safe harbor, modern portfolio theory

JEL Classification: G11, J26, K10, K23, K31, G23, H55

Suggested Citation

Schanzenbach, Max Matthew and Sitkoff, Robert H., Fiduciary Financial Advisers and the Incoherence of a 'High-Quality Low-Fee' Safe Harbor (September 16, 2015). Northwestern Law & Econ Research Paper No. 15-18, Available at SSRN: or

Max Matthew Schanzenbach

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

Robert H. Sitkoff (Contact Author)

Harvard University - Harvard Law School ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels

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