Do 401k Plan Advisors Take Their Own Advice?

Sponsors of defined contribution plans often hire financial advisors to help them to design and monitor these plans. I compare the designs of plans that advisors help create and monitor (client plans) to the designs of plans that the advisors use themselves (advisor plans). I find that advisors have an impact on the investment menus of their clients. Compared to an average pair of plans, a pair of plans that have the same advisor is more likely to hold identical funds and use identical fund families. Client plans also tend to have similar holdings to their advisors’ plans. They tend to hold identical funds, identical fund families and identical categories of mutual funds. When examining the funds that clients do not share with their advisors, I find that these funds have higher expense ratios than the funds that are held by both clients and advisors. I find only tentative evidence that clients who compensate their advisors only indirectly through commissions have more expensive funds than clients that also provide direct compensation to their advisors.