Archives for March 16, 2016

Top 10 Financial Advisor Firms With Highest Misconduct Rate

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

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There is a famous quote that Charlie Munger uses as an example of the inversion technique:

Tell me where I’m going to die, so I won’t go there.

Instead of focusing on things we should to help us, we can also simply avoid doing things that will hurt us. Don’t do drugs. Don’t gamble.

I can’t provide a clear roadmap to finding a great financial advisor. But after reading through the SSRN research paper The Market for Financial Adviser Misconduct mentioned yesterday, I certainly know what to avoid. Here’s my version of the Munger quote:

Tell me where I’m most likely to be mistreated financially, and I won’t put my money there.

These are the top 10 firms ranked according to the percentage of advisors who been disciplined for misconduct, as based on the FINRA BrokerCheck database. This list is restricted to firms with at least 1,000 advsiors.

  • 20% Oppenheimer & Co.
  • 18% First Allied Securities, Inc.
  • 15% Wells Fargo Advisors Financial Network, LLC
  • 15% UBS Financial Services
  • 14% Cetera Advisors, LLC
  • 14% Securities America, Inc.
  • 14% National Planning Corporation
  • 14% Raymond James & Associates, Inc.
  • 13% Stifel, Nicolaus & Company, Inc.
  • 13% Janney Montgomery Scott, LLC

Yes, you read that right, 1 in 5 advisors employed by Oppenheimer & Co have at least one misconduct-related disclosure in the their files. All of these firms above have incident rates roughly double that of the overall advisor population. Mix in the information we learned previously about the high likelihood of being repeat offenders, and it’s quite simple to avoid putting your hard-earned money anywhere near these firms.

Source screenshot:

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They May Not All Be, But Your Financial Advisor Should Be a Fiduciary

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

dol_logoRight now, there is a big debate in Congress about whether the fiduciary standard should be required for all financial advisors that manage retirement accounts. A fiduciary requirement would include the following:

  • They must exercise best efforts to act in the best interests of the client.
  • They must provide disclosure of any conflicts of interest.
  • They must clearly explain how they make their money (upfront fees, asset-based fees, commissions, etc.)

Most people probably think “Wait, don’t they do this already”? Nope. Even so, many still violate the current lower standards! Barry Ritholtz has some scary numbers in his Bloomberg article Brokers Behaving Badly:

  • 1 in 13 brokers have committed misconduct that resulted in disciplinary action.
  • Half of those brokers are fired, but nearly half simply move on to work for another firm within a year.
  • About a third of brokers are repeat offenders (multiple events of misconduct).

(Use the FINRA Broker Check tool to look up regulatory actions, violations or complaints for a specific person or firm.)

The worst part is that much of the financial industry continues to fight against the fiduciary standard. Even popular “guru” Dave Ramsey opposes the fiduciary proposal, and has been called out on Twitter for it. They claim it will “limit middle-class access to financial advice”, which roughly translates in my mind to “if we can no longer suck huge 8% commissions from small accounts, then we might not bother anymore”.

I enjoy managing my own investments. I also believe that hiring a good financial advisor would work well for many people. A “good” financial advisor needs to have hard knowledge, soft communication skills, and the proper alignment of interests.

Whoever wins this political fight, you as an individual still have the right to demand that your financial advisor be a fiduciary. Those letters after people’s name don’t all have the same value. Certain designations like Registered Investment Advisor (RIA) include a fiduciary standard component. You may also show them this Fiduciary Pledge and see how they respond. Being a fiduciary alone is not enough to find an appropriate advisor, but it does serve as a very simple and basic filter.

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