InvestmentNews reports that according to a new working paper by business school professors at the University of Minnesota and the University of Chicago, 7% of financial advisers have been subject to discipline for misconduct. The study noted that at certain large firms, the trend of misconduct exceeds that average. For example, found the paper, at Oppenheimer & Co., almost 20% of its advisors’ records indicate misconduct.
Other advisor firms noted for their high misconduct rates included First Allied Securities at 17.7%, Wells Fargo Advisors (WFC) at 15.3%, UBS Financial Services (UBS) at 15.14%, Cetera Advisors at 14.39%, Securities America at 14.3%, National Planning Corp. at 14%, Raymond James Financial Inc. (RJF) at 13.74%, Stifel Nicolaus & Co. at 13.27%, (SF) and Janney Montgomery Scott at 13.27%. Firms with the lowest misconduct rates among its advisers included Morgan Stanley & Co. (MS), Goldman Sachs & Co. (GS), BlackRock Investment (BLK), UBS Securities, Jefferies, Prudential Investment Management, and Wells Fargo Securities, among others.
University of Chicago finance professor Amit Seru, who co-authored the working paper, titled “The Market for Financial Adviser Misconduct” called this misconduct problem “pervasive.” He also said that he believes the study did a conservative job of measuring misconduct, which ranges from behavior such as placing clients in unsuitable investments to the more extreme type, such as using client accounts to trade without their permission. Insurance products were reportedly factor in many misconduct cases.
The study noted that firms often do take action when misconduct by its advisers is discovered. About half of those caught are fired, although 44% of these individuals will typically end up going to another firm. Often these places will have higher misconduct rates, making it possible for the advisers to continue engaging in wrongful behavior. The study said that prior offenders are five times more likely to taking part in new actions of misconduct than the average adviser.
Recently, Marc Wyatt, director of the SEC’s Office of Compliance, Inspections and Examinations, said that the agency’s reported 10% yearly examination rate for investment advisers is deceptive and that the agency isn’t merely reviewing that percentage of advisers every year. Wyatt says that the OCIE looks at information from registration forms and other sources to determine which advisers warrant examination and that is where the agency focuses its limited resources and time for inspections.
Speaking at the IA Watch compliance conference last month, Wyatt noted that the regulator also lets private firms and other organizations examine investment advisers. At the moment, the SEC is drafting a rule that would let third parties perform examinations. The regulator oversees over 12,000 investment advisers.
Also, President Barack Obama is looking at how to help the agency better regulate investment advisers. He is seeking to double the SEC’s funding over the next five years so that the different investment advisers are examined more often. This would help provide protections for investors. The president’s fiscal 2017 budget proposal outlined how it would like this increase to come about.
Our financial adviser fraud attorneys are here to help investors recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today to request your free case consultation.
Study: Some 20% of Oppenheimer financial advisers cited for misconduct, InvestmentNews, March 1, 2016
SEC Inspections Head Decries 10% RIA Annual Exam Rate, FA-Mag.com, February 25, 2016