Nav: Home

Does your financial adviser specialize in misconduct?

March 01, 2016

Financial advisers are often perceived as dishonest, and consistently rank among the least trustworthy professionals. New research from the University of Chicago Booth School of Business suggests this public perception may be deserved.

In the first large-scale study documenting the economy-wide extent of misconduct among financial advisers and financial advisory firms in the United States, researchers find that most financial advisers who engage in misconduct get to keep their jobs--or are quickly rehired by another firm in the industry.

The working paper, "The Market for Financial Adviser Misconduct," by Professor of Finance Amit Seru and Associate Professor of Finance Gregor Matvos, both of Chicago Booth, along with the University of Minnesota's Mark Egan, finds that some of the largest financial advisory firms in the U.S. have the highest rates of misconduct.

At Oppenheimer, 20 percent of advisers have been disciplined for misconduct, the researchers find. At First Allied Securities, 18 percent; at Wells Fargo Advisors FN, 15 percent; and at UBS Financial Services, 15 percent. Morgan Stanley and Goldman Sachs are among the firms with the lowest rates of misconduct, with rates at both closer to 1 percent.

The researchers constructed a novel database containing financial advisers in the U.S. from 2005 to 2015, representing approximately 10 percent of the employment of the finance and insurance sector. The data reveal that more than 12 percent of active financial advisers' records have a disclosure, which can indicate any sort of dispute or disciplinary action, alleged or established.

Approximately 7 percent of advisers have misconduct records. Prior offenders are five times as likely to engage in new misconduct as the average financial advisor. More than half of misbehaving advisers stay with the same firm after a year, according to the data. Of those who leave, 44 percent quickly (within a year) find new jobs in the industry.

The research indicates that misconduct is widespread in regions with relatively high incomes, low education levels, and elderly populations. Some firms rife with misconduct are likely targeting vulnerable consumers, say the researchers, while other firms use their reputation to attract sophisticated consumers.

Financial advisers' misconduct records are public information, which should help to prevent and punish misconduct. But according to the research, neither market forces nor regulators are successfully preventing such advisers from continuing to provide their services.

The research has implications for regulators, policy makers and the financial industry. Financial advice is big business in the US: 56 percent of all American households seek advice from a financial professional, according to the Survey of Consumer Finances, issued by the US Federal Reserve in cooperation with the Treasury Department.

University of Chicago Booth School of Business

Related Research Articles:

More Research News and Research Current Events

Trending Science News

Current Coronavirus (COVID-19) News

Top Science Podcasts

We have hand picked the top science podcasts of 2020.
Now Playing: TED Radio Hour

Listen Again: The Power Of Spaces
How do spaces shape the human experience? In what ways do our rooms, homes, and buildings give us meaning and purpose? This hour, TED speakers explore the power of the spaces we make and inhabit. Guests include architect Michael Murphy, musician David Byrne, artist Es Devlin, and architect Siamak Hariri.
Now Playing: Science for the People

#576 Science Communication in Creative Places
When you think of science communication, you might think of TED talks or museum talks or video talks, or... people giving lectures. It's a lot of people talking. But there's more to sci comm than that. This week host Bethany Brookshire talks to three people who have looked at science communication in places you might not expect it. We'll speak with Mauna Dasari, a graduate student at Notre Dame, about making mammals into a March Madness match. We'll talk with Sarah Garner, director of the Pathologists Assistant Program at Tulane University School of Medicine, who takes pathology instruction out of...
Now Playing: Radiolab

What If?
There's plenty of speculation about what Donald Trump might do in the wake of the election. Would he dispute the results if he loses? Would he simply refuse to leave office, or even try to use the military to maintain control? Last summer, Rosa Brooks got together a team of experts and political operatives from both sides of the aisle to ask a slightly different question. Rather than arguing about whether he'd do those things, they dug into what exactly would happen if he did. Part war game part choose your own adventure, Rosa's Transition Integrity Project doesn't give us any predictions, and it isn't a referendum on Trump. Instead, it's a deeply illuminating stress test on our laws, our institutions, and on the commitment to democracy written into the constitution. This episode was reported by Bethel Habte, with help from Tracie Hunte, and produced by Bethel Habte. Jeremy Bloom provided original music. Support Radiolab by becoming a member today at     You can read The Transition Integrity Project's report here.