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Study Examines Extent of Financial Advisor Misconduct
Old 03-02-2016, 09:55 AM   #1
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Study Examines Extent of Financial Advisor Misconduct

I find this study - published February 26, 2016 - pretty amazing and disturbing. Three individuals at the University of Chicago state in the study they examined the available information on financial advisor misconduct and fraud for the approximately 1.2 million registered financial advisors in the U.S. between 2005 and 2015. According to authors, this represents only 10% of all employment in the financial and insurance industry.

Below you will find the first six sentences from their conclusion:

"We document substantial misconduct among United States advisors. More than 12% of financial advisors have a disclosure on their record, and approximately 7% have been disciplined for misconduct and/or fraud. The costs of misconduct are not small: the median settlement amount is $40,000. Misconduct varies dramatically across advisors and firms, and repeat offenders are common. Although advisors face consequences for misconduct, the majority of advisors remain in the industry following misconduct. More than 50% remain with the same firm after a year, and 20% switch to a different firm in the industry."

The study also lists the financial firms with the most and least advisors with reported misconduct, based on percent of their total number of advisors. The paper only lists the 10 most and least firms with reported misconduct, not all firms studied.

Here is the link to the study: The Market for Financial Adviser Misconduct by Mark Egan, Gregor Matvos, Amit Seru :: SSRN

There is an active discussion on this study at bogleheads.org as well.
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Old 03-02-2016, 10:10 AM   #2
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Honestly, this is why I find it easier to DIY finances. You'd still need to do your research so you can find an advisor that wouldn't screw you over. By that point, then you likely already have the knowledge to DIY and can avoid paying the FA/CFP 1-2% of assets per year.
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Old 03-02-2016, 10:16 AM   #3
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Is this study a surprise to anyone ?

Change the name "Financial advisor" to salesman to understand their motivations better.
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Old 03-02-2016, 12:22 PM   #4
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"44% of advisers who lost their job after misconduct found employment in the industry within a year." Yikes!

Good article, thanks.
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Old 03-02-2016, 12:31 PM   #5
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And those are just the ones who got caught.
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Old 03-03-2016, 12:47 PM   #6
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Quote:
Originally Posted by MasterBlaster View Post
Is this study a surprise to anyone ?

Change the name "Financial advisor" to salesman to understand their motivations better.
Misconduct in the financial industry. Impossible. These people should totally be able to self-regulate. I'm sure it was all just a big misunderstanding!
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Old 03-03-2016, 01:46 PM   #7
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I wonder if any of the do-it-yourself investors ever get caught for misconduct?

I'm sure some DIY folks are guilty of fraud and misconduct with their portfolios, too.
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Old 03-03-2016, 04:17 PM   #8
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Would you live in the same neighborhood as a registered financial adviser?
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Old 03-03-2016, 04:21 PM   #9
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Old 03-03-2016, 06:44 PM   #10
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Today: Elizabeth Warren ... FINRA... Senate Hearing

Elizabeth Warren: Bad Behavior Is Still Too Common Among Financial Advisors - The Atlantic

To the woodshed...
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