The Market for Financial Advisor Misconduct

We all like to think that our financial advisor is working in our best interests, right? Well that is not always the case as discussed in a new study of financial advisor misconduct. One of the first large-scale studies documenting misconduct among financial advisors was issued late last month by business professors from the University of Minnesota and the University of Chicago business school. Here are some key points made in the paper:

  • The most common cause of a misconduct disclosure is a customer dispute that has been settled.
  • The three most common reasons for customer disputes are unsuitable advice, misrepresentations and unauthorized activity.
  • In some counties in Florida and California, around 20% of advisers have been disciplined.
  • Roughly one-third of the 7% disciplined are repeat offenders.
  • Past offenders are as much as five times more likely to engage in misconduct than the average adviser.
  • The median settlement payment paid to customers is $40,000.
  • Over half of financial advisers who engage in misconduct keep their job into the following year.
  • And 44% of those who do lose their job after misconduct find a new job within a year.
  • Morgan Stanley and Goldman Sachs have the lowest percentage of advisers who have been disciplined for misconduct, while Oppenheimer has the highest.

So, how can individuals tell if their advisor is a crook? The first place to go is to see if they have had a disciplinary action against them. But even that isn't enough to sort the good from the bad.

The full report on advisor misconduct can be found by clicking here.

The NAOI has created Dynamic Investment Theory to provide individuals with an investing methodology that greatly reduces an advisor's influence over the investments that you own. You can read about it on this site.