A new study notes that roughly 7% of advisers have misconduct records — and that prior offenders are five times as likely to engage in new misconduct as the average financial adviser.
Not that there isn’t action taken; the study, undertaken by researchers at the University of Chicago, found that approximately half of financial advisers lose their jobs after their misconduct — following which they also face longer unemployment spells and move to less reputable firms, with a 10% reduction in compensation.
And yes, the study, “The Market for Financial Adviser Misconduct,” finds that 44% of these advisers are reemployed in the financial services industry within a year.
Interestingly enough, the researchers claim that firms which hire these advisers also have higher rates of prior misconduct themselves. The research also reveals similar results for advisers of dissolved firms, in which all advisers are forced to find new employment independent of past misconduct or performance.
Controversially, the study notes that firms that persistently engage in misconduct coexist with firms that have clean records, finding that differences in consumer sophistication may be partially responsible for this phenomenon. Specifically, the researchers found misconduct concentrated in firms with retail customers and in counties with low education, elderly populations and high incomes — going so far as to state that their findings suggest that some firms “specialize” in misconduct and cater to unsophisticated consumers, while others use their reputation to attract sophisticated consumers.
