Personal Finance

Your advisor might be hiding something from you

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Almost half of the financial advisors fired for misconduct wind up getting similar jobs in the industry, a university research paper has found.

About 44 percent of advisors who leave a financial services job following disciplinary action for misconduct are hired by another firm within a year, according to the study by University of Chicago and University of Minnesota business school professors. The researchers refer to advisors regulated by the Financial Industry Regulatory Authority, the industry's self-regulatory organization overseeing broker-dealers and brokerage firms.

"The numbers speak for themselves," said study co-author Mark Egan, assistant professor of finance at the University of Minnesota's Carlson School of Management. "Firms discipline misconduct severely, but the industry as a whole undoes that discipline, at least partially."

Since about half of advisors don't actually lose their job after misconduct, nearly 3 in 4 professionals with blemished records are still active after a year, Egan said.

These financial firms land on disciplinary action list

To arrive at their conclusions, Egan and his Booth School of Business co-authors Gregor Matvos and Amit Seru scanned the records of advisors registered in FINRA's database over the last decade — including more than 600,000 active professionals.

To count as "misconduct," disputes had to be settled (not dismissed or pending) and included activities like misrepresentation, recommending unsuitable investment products, negligence, omitting key facts and trading without customer authorization.

The authors found that 7 percent of U.S. financial advisors overall have records of some type of fraud or misconduct, and those working in certain counties in the U.S. — particularly those with wealthy, less-educated, or elderly populations — had even higher rates. About 18 percent of advisors in Palm Beach, Florida, and Monterey, California, had records of misconduct, Egan said. Those in Madison County, near Syracuse, New York, had the highest rate, at 32 percent.

The problem isn't limited to smaller advisory businesses. Certain big firms have especially high rates: 20 percent of advisors at Oppenheimer & Co. and 15 percent of advisors at UBS Financial Services, for example, have been disciplined for misconduct.

A UBS spokesperson said the company had no comment. Oppenheimer & Co. representative Jacqui Emerson wrote in a statement: "Oppenheimer has made significant investments to proactively tackle risk and compliance issues in our private client division. ... We are confident that we have put in place safeguards to ensure that our advisors and other employees meet the highest ethical standards."

What to look for in a financial advisor—according to advisors

If you use a financial advisor and haven't researched his or her record, you wouldn't be alone: The Securities and Exchange Commission has found that the majority of people hiring an advisor don't conduct a background check — and those who do simply rely on Google.

People might not realize that running a check is fast and free, said FINRA spokesman Ray Pellecchia.

"We strongly recommend that individuals themselves use BrokerCheck, which is where the researchers got their data," Pellecchia said.

You can search FINRA's database for your financial advisor's record at If your advisor isn't showing up or has a common name, ask for his or her unique CRD number, which you can also use to search.

Registered Investment Advisors — who aren't broker-dealers — are regulated by the SEC or individual states rather than FINRA, therefore they were not included in the study. But you can still check their records on BrokerCheck, which automatically redirects to the SEC database.