Surprise – There’s a Good Chance Your Broker Is Ripping You Off

Good financial professionals can help us grow our nest eggs, save money on taxes, and plan effectively for the future. But lousy ones can really hurt us — and apparently there are a lot of them out there.

By Selena Maranjian

It’s reasonable to be intimidated by the world of investing as, after all, few of us ever learned much about it in school. Thus, it can seem as if a reasonable and safe thing to do is to seek out professional guidance or to simply accept professional advice that’s offered. According to a recent study, though, it turns out that’s not such a safe move.

Academics Mark Egan, Gregor Matvos, and Amit Seru at the University of Minnesota and University of Chicago business schools recently released some eye-opening findings in a report  titled “The Market for Financial Misconduct.” They examined the records of more than a million financial advisors and former financial advisors between 2005 and 2015 and learned that a shocking 7% of them — 87,000 in total — had been disciplined for misconduct or fraud.

Before jumping into more details from the study, note that the 7% represents those that were misbehaving and discovered. The percentage of total misbehavers is likely significantly higher, as those who were never caught are not included in the 7%.


Image: ryanmotoNSB, Flickr.

Here are some additional tidbits from the study [opens PDF], along with some important considerations:

  • According to a 2010 study, 56% of American households had consulted financial professionals for advice. In other words, financial advising is big business. Indeed, the Egan, Matvos, and Seru study noted that more than 650,000 registered financial advisors manage more than $30 trillion in client money. Thus, if even 1% of these pros were misbehaving it would be bad news for lots of people and would likely involve a lot of people. But it’s 7%.
  • The 7% is a rough average. The study also reported on which financial services companies had the best and worst records. According to the study, four firms had 15% or more of their professionals having been disciplined for misconduct. By contrast, two firms had fewer than 1% of their advisors having received such discipline, including Morgan Stanley at 0.8% and Goldman Sachs at 0.9%.
  • There was a wide range of complaints  that led to the misconducts studied. The top ones were unsuitable advice (21.3%), misrepresentation (17.7%), unauthorized activity (15.1%), omission of key facts (11.6%), fees/commissions (8.7%), and fraud (7.9%). These can serve to remind us to be vigilant when consulting advisors, asking a lot of questions and keeping an eye on our accounts and their actions. It can be helpful to find out whether your advisor is held to the “fiduciary” standard, which requires offering advice that is in the client’s best interest. Non-fiduciaries can get away with simply offering suitable recommendations that may earn them bigger commissions than better recommendations would.
  • It’s not just stock-related advice that has gotten many advisors (and their clients) in trouble. Per the study, the specific products  involved in the most misconduct were insurance (13.8%), annuities (8.6%), stocks (6%), and mutual funds (4.6%). The majority of instances, about 70%, though, fell in the “other/not listed” category. Still, this is a warning that consumers may be bamboozled more often regarding insurance and annuity products than stocks or funds.
  • Fully half  of the 10 counties in the U.S. with the highest misconduct rates are in Florida, reflecting the fact that many dastardly types target retirees and the elderly, as they often have significant assets and can be extra trusting sometimes.
  • Misbehaving financial advisors don’t just go away once they’re disciplined. According to the study, about half of them keep their job, while many others simply find other jobs in the same industry — and many become repeat offenders.

The entire study is a useful wake-up call to all of us who do or might tap the services of a financial advisor. It’s not a dumb thing to do — good financial professionals can help us grow our nest eggs, save money on taxes, and plan effectively for the future. But lousy ones can really hurt us — and apparently there are a lot of them out there. One way to protect yourself is to do a little digging into a broker’s background. The BrokerCheck service from the Financial Industry Regulatory Authority can help you there.

2 new scorching stock picks have arrived
The same guys that hit giant home runs with Amazon and Netflix just stepped back up to the plate. On Friday, David and Tom Gardner, the co-founders of The Motley Fool, released two new picks. When these guys speak, it pays to listen — they have tripled the market’s returns over the last 13 years.

Click here now to be among the first people to hear about David and Tom’s newest stock recommendations.

The author(s) may have a position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Netflix.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns no shares of any company mentioned in this article. The Motley Fool owns shares of and recommends Wells Fargo. The Motley Fool has the following options: short March 2016 $52 puts on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


You May Also Like
An Unknown Side of Cancun: Enjoy a Luxurious Stay at the JW Marriott Resort and Spa and Bring Your Taste for Adventure

Treat yourself to luxury, relaxation and unforgettable experiences at this fantastic resort.

Read More
Steiger Facial Plastic Surgery Offers Pamper Mom Facial Special

The offering is available through May 31.

Read More
NAIOP South Florida Appoints Officers, Executive Board and Board of Directors for 2022

NAIOP South Florida, a Commercial Real Estate Development Association offering advocacy, education and business opportunities to its members, has announced the following officers for the 2022 Board of Directors: President:

Read More
Pride Week Festival Begins With Tribute to Pulse Nightclub Survivor

Miami Beach Pride’s week-long festivities will commence with a special tribute to the LGBTQ+ community honoring the victims of the tragic shooting at Pulse Nightclub in Orlando. A ceremonial “flip

Read More
Other Posts
Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale

Read More
Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is

Read More
South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service

Read More
Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and

Read More

Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.