New research has found that misconduct is widespread among financial advisers. Learn what you can do to stay safe.
New research has found that misconduct is widespread among financial advisers — and that some of the country’s largest financial advisory firms have the highest rates of misconduct.
The sobering findings are detailed in a working paper titled “The Market for Financial Adviser Misconduct.” The paper out of the University of Chicago and University of Minnesota ranks Oppenheimer & Co. as the No. 1 offender.
The firm has what the researchers call a “fraud rate” of 19.6 percent. In other words, of Oppenheimer’s 2,275 financial advisers, 19.6 percent have been disciplined for misconduct.
Rounding out the top three worst-ranked firms are First Allied Securities and Wells Fargo Advisers FN. (Lists of the 10 worst- and best-ranked firms, as well as their advisers’ disciplinary rates, can be found on the University of Chicago’s Capital Ideas blog.)
Overall, 7 percent of financial advisers have been disciplined for some type of misconduct, according to the report.
Report co-author Amit Seru, a finance professor at the University of Chicago’s Booth School of Business, tells Bloomberg Business that financial adviser misconduct is “pervasive” — it’s not unique to small firms but is “everywhere,” he says.
The bad news doesn’t stop there.
Researchers also found that most financial advisers who engage in misconduct get to keep their jobs or are able to find new jobs with other financial advisory firms. The authors continue in the paper:
“We find evidence suggesting that some firms specialize in misconduct. Such firms are more tolerant of misconduct, hiring advisers with unscrupulous records. These firms also hire advisers who engage in misconduct to a lesser degree.”
The researchers used data from BrokerCheck, a database maintained by the Financial Industry Regulatory Authority (FINRA). FINRA is the self-regulatory agency that oversees securities salespeople.
BrokerCheck is a free database that’s open to the public. Here’s how FINRA describes it:
Simply type in your current or prospective broker’s name to see employment history, certifications and licenses — as well as regulatory actions, violations or complaints you might want to know about. You also can get information about your broker’s firm. There’s no reason not to check.
BrokerCheck is a great place to start when vetting a financial adviser, but it’s just one of several steps you can take to ensure your nest egg is in good hands.
To learn more about how to research advisers, don’t miss “Ask Stacy: How Do I Find a Good Investment Adviser?” by Money Talks New founder and former Wall Street financial adviser Stacy Johnson.
Are you surprised by the new research findings? Share your take with us — drop a comment below or on our Facebook page.