New Study Reveals: 7% of Financial Advisers Are Guilty of Misconduct. How Safe Are You?

In February 2016, academics Mark Egan, Gregor Matvos and Amit Seru at the University of Minnesota and University of Chicago business schools released a report titled “The Market for Financial Adviser Misconduct” on financial advisers in the United States. The report reveals how rampant securities fraud and broker misconduct is throughout the country. For the purpose of the study, these academics have analyzed the full set of disclosures of approximately 10% of employees in the finance and insurance sectors between 2005 and 2015, and taken in to account customer complaints, arbitrations, regulatory actions, terminations, bankruptcy filings and criminal proceedings. Based on this study, 7% of advisers were reported to have engaged in misconduct. The actual unreported cases may add to this number.

Here at Malecki Law, it is our mission to protect individuals who have been victimized by unscrupulous brokers. Here are some excerpts highlighting the important findings from this study:

  • According to the report, prior offenders are five times more likely to repeat their misconduct as compared to an average adviser. Approximately one-third of advisers with misconduct reports are repeat offenders. That is why we encourage all investors to investigate their broker on FINRA’s BrokerCheck
  • According to the study, 1 in 13 financial advisers have a misconduct related disclosure on their record. Financial advisers are disciplined for misconduct by FINRA which can sometimes result in employment termination for them at a brokerage firm. However, the report reveals that 44% of brokers are often reemployed by lesser reputable firms for reduced compensations.
  • Firms with cleaner records co-exist with those that persistently engage in misconduct. Sometimes brokers migrate in large numbers from firms that are dissolved due to repeated offences. A quick look on the FINRA BrokerCheck can reveal all these details about the adviser and the firm. As per this report, often the less reputable firms seek out less sophisticated and elderly investors, while others use their reputation to attract sophisticated customers and let misconduct exist in “equilibrium”.
  • According to their findings, some large firms are more likely to employ brokers with misconduct than others. 1 in 7 advisers at Oppenheimer & Co, Wells Fargo Advisors Network, and First Allied Securities have past misconduct. Whereas, Goldman Sachs and Morgan Stanley have relatively low ratios of brokers with reported instances misconduct.
  • Of all kinds of misconduct, Unsuitable Investment topped the list at 21.3%, followed by Misrepresentation at 17.7%, Unauthorized Activity at 15.1%. Financial advisers have a fiduciary duty to give advice to clients that is in the client’s best interest and suitable to his/her portfolio and circumstance.
  • According to the report, the top 10 counties with highest instances of misconduct is in New York and Florida.
  • Other than stocks the disclosures include securities products annuities, insurance, mutual funds, and more.

We help clients recover their losses if they have been a victim of financial adviser misconduct. Let us evaluate if you or someone you know is suspicious about their adviser. Our initial consultation is complimentary. Read our Case Results for a sampling of investor recover cases.

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