When you reflect on the grim news that 73% of financial advisers who get caught breaking the rules are still doing business with the public a year later, you might just cross your fingers and hope that yours is one of the good guys.
But here's a big-time reality check: The distressing results of research by University of Minnesota's Mark Egan and University of Chicago's Gregor Matvos and Amit Seru. The professors pulled together ten years of disciplinary information on 644,000 current and 638,000 former brokers and registered investment advisers and presented them in a March 1 working paper, "The Market For Financial Adviser Misconduct."
The chilling fact that nearly three-quarters of misbehaving brokers still have a job a year after they're cited for misconduct is just one of the trio's worrisome findings.
Here's another: While 7.3% of brokers nationwide have black marks, if you live in certain parts of California, New York or Florida, that rate can spike to 18% and higher. I'm talking about you, upstate New York. And you, Palm Beach and Monterey counties.
If that hasn't made you depressed enough, consider that the study likely understates the problem.
The professors relied on public records kept by Finra, Wall Street's self-regulatory operation. The Finra database, known as BrokerCheck, includes people who are unlikely to generate complaints because they rarely if ever deal with the public -- securities analysts and proprietary traders, for example. It wouldn't be surprising to see a higher percentage of wrongdoers in a study that looked only at retail stockbrokers.