Study Finds 7% of Financial Advisers Have Misconduct Records

About seven percent of financial advisers have a record of violating industry rules, according to study published on Monday by the National Bureau of Economic Research.

Members of the prior offenders club are about five times more likely to transgress again compared to new advisers, said the researchers, who noted that they analyzed the records of about 10 percent of finance and insurance analysts from 2005 to 2015. Around half of the offenders in the researchers’ database were fired after their misconduct, but 44 percent of them found employment in the financial services industry within a year.

“Additionally, firms that hire these advisers also have higher rates of prior misconduct themselves,” the report’s authors — Mark Egan, Gregor Matvos and Amit Seru — said in the paper’s abstract. Still, offenders saw an average of a 10 percent cut in pay and moved to less reputable firms after a misconduct-related dismissal.

Misconduct in the sector is concentrated at “firms with retail customers and in counties with low education, elderly populations, and high incomes,” the researchers found.

The report comes as the Labor Department prepares to finalize a rule aimed at curbing conflicts of interest in the retirement advice industry. Some members of Congress have criticized the rule as overly burdensome and floated alternative legislative proposals.

Additionally, the Securities and Exchange Commission recently launched a public relations campaign aimed at increasing awareness of fraud in the retail advisory sector.

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