Are dodgy financial advisers common, and what should be done about them?
Whatever about Ireland, they’re not uncommon in the US. A new study, The Problem of Good Conduct Among Financial Advisers, finds that about one in 15 advisers has a history of “serious misconduct, with this rate rising to one in six in certain regions and firms”. The latter finding suggests misconduct is partly “a learned behaviour”, and one that is “contagious among co-workers”.
What can be done? One solution is “naming and shaming” firms with poor records, which has been shown to reduce misconduct by 10 per cent. Another possible solution is greater financial education, as many people struggle to understand financial products, making it tricky for them to identify bad advisers.
However, raising people’s financial sophistication is “inherently difficult”. A more effective approach, the authors argue, is to educate advisers – not about finance, but about ethics.
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Previous research has found that students who pass financial exams with more rules and ethics coverage are much less likely to commit misconduct, and more likely to leave employers embroiled in scandals. It seems that to protect consumers, regulators and firms must go beyond numbers and make ethics as essential as financial expertise.
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