Most Americans use some
sort of financial advisor
for making their retirement and
financial planning decisions.
Roughly one in 10 advisors have
a past record of misconduct.
We sort of have to
imagine that's probably
just the tip of the iceberg.
One nice thing
about this industry
is it's highly regulated.
So it's really interesting
to dive into the data
and see that misconduct
is relatively common.
But what I see in the
data is only misconduct
that was ultimately
detected by the customer.
So the amount of actual
misconduct that's going
on amongst ...
in the financial
advisory industry
could be substantially greater.
What I mean by misconduct, it's
any sort of customer dispute
that resulted in a settlement,
a regulatory offense,
or a criminal offense.
So one of the important things
is misconduct is not frivolous.
The average settlement
is on the order
of several thousand dollars for
one of these customer disputes.
One of the things we
find is past misconduct
is highly predictive
of future misconduct.
So advisors with a past
record of misconduct
are five times more
likely to engage
in misconduct than an advisor
without a record of misconduct.
This is costly for
firms and customers.
You might think that
reputation should
drive these recidivists
advisors from the industry.
There's a 50-50
chance an advisor may
lose his job or her job
following misconduct,
but they typically find
re-employment across the street
working for a different
financial advisory firm,
even if they do get fired.
One of the things that's
particularly troubling
about this issue is if you
look at areas that are affected
the most by this
advisor misconduct
is areas where you
have a lot of retirees
who tend to be less educated and
less financially sophisticated.
Roughly one in five
advisors in those areas
have a past record
of misconduct.
Where you look in sort of more
sophisticated populations,
it's closer to one in 20.
So what we've been
working on now
is thinking about what is
the regulatory response
and what should firms be
doing about this issue.
The FINRA, our the securities
regulator in the US,
has done a pretty good job
of increased disclosures
and national policy response.
FINRA has this
website called Broker
Check where you can
look up anyone who's
been working in the securities
industry over the past 10
years.
So consumers become aware of the
reputation at different firms.
