If you’re like most investors, you likely believe that stockbrokers with checkered pasts get drummed out of the industry.
Certainly, out-of-work stockbrokers would like you to believe that. But the data tells a different story: Of brokers fired for misconduct, 44% are back at work within a year.
That’s the conclusion of researchers at the University of Minnesota. And the infractions committed were not necessarily the result of complex regulations, the researchers found. Roughly a third of the stockbrokers with misconduct records were repeat offenders.
That’s not, however, the same as “unemployable.” In fact, some firms seek out bad brokers. “There are firms that hire from predatory firms that go out of business. That is your biggest risk,” Richard Ketchum, CEO of investment industry regulator Finra, told The Wall Street Journal.
The privately run regulator said that it will make changes to its BrokerCheck system to show patterns of misconduct among brokers. Simply providing the number of problem brokers at a firm would be inaccurate, Ketchum noted, because some investment companies are much larger than others.
The bigger problem, however, is that all of these industry-led “solutions” take a buyer-beware approach that has failed retirement investors for decades. It’s really not fair to expect millions of individual investors to do the legwork necessary to vet the careers of advisors who claim to be working on their behalf.
By design, financial corporate marketing conspires to reduce the urgency to check up on your stockbroker. If a big fancy firm with its own lawyers hires some guy to manage your money, didn’t they check the person out before hiring?
Yet it has become clear, judging from Ketchum’s warning, that the opposite may be true. If you pick the wrong firm, you could easily end up with a financial advisor who was literally fired from another employer, only to be sought out a few months later and move on with his career — no harm, no foul. Big firms, with well-known and trusted names.
You would expect a state bar association to get rid of a crooked lawyer. You would expect the state medical board to crack down on quack doctors.
Heck, you would even expect a used-car salesman to have a hard time finding work once he shafts a customer or two. Burn enough bridges and you’re done.
Not in the investment industry. That’s why the move toward a fiduciary standard for retirement investment advice is so crucial to the American retirement investor.
Fierce pushback
Stories of so-called “accredited” investors getting taken by con artists are legion. We have come to expect vultures to circle around anyone who has loads of investable cash but not much money smarts. Musicians, sports figures and lottery winners go bankrupt at a startling rate.
It’s sad but not unexpected. Unfortunately, the average American retirement saver is not a multi-millionaire athlete. Rather, they get to retirement step by painstaking step. There’s no room for “oops” and absolutely no room for fraudsters.
Can we do better as a country? The Department of Labor thinks so. Yet the pushback from the stockbrokers has been fierce and will remain so for months to come.
Ultimately, we at Rebalance believe that change is inevitable and, with that change, longstanding practices that hurt retirement savers will become a thing of the past. A shift in investment industry culture is overdue, that’s for sure.
