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Can FINRA Protect Investors from Financial Advisor Misconduct ?

Financial Advisor Misconduct

Financial Advisor Misconduct – new study says 1 in 10 advisors has severe misconduct records.

According Financial IQ a recent study, ’The Market for Financial Advisor Misconduct,’ to be published in the Journal of Political Economy, says that one in ten advisors has severe misconduct records and that may be on the conservative side.

The study coauthored by Amit Seru, professor at Stanford Graduate School of Business; Gregor Matvos, professor at the McCombs School of Business at the University of Texas; and Mark Egan, assistant professor at Harvard Business School, shows rogue brokers are operating throughout the United States with the highest concentrations in Madison, N.Y.; Indian River, FL; and Monterey, CA, according to the study.

The study uses specific Financial Industry Regulatory Authority (FINRA) misconduct disclosures, as they represent dishonest behavior, according to co-aurthor Seru. The disclosures used included unsuitability, misrepresentation, unauthorized activity, omission of key facts, fee related issues, fraud, fiduciary duty issues, negligence, risky investments, and churning, among others.

Even though these rogue brokers may be found all across the country, they often seem to be concentrated in certain firms, according to the study.  According to the study, financial advisors continue working in in the industry by representing unsophisticated clients who may be unaware of their misbehavior.

When brokers abuse client accounts and conduct transactions that violate securities laws, the brokerage firm they are working with may be liable for investment losses. Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.

How does FINRA protect investors against Financial Advisor Misconduct?

In May, we told you how FINRA, the non-governmental regulator for all securities firms in the US, had released proposals to place additional restrictions on firms that employ brokers with a history of misconduct. The regulator has been criticized by many for being too weak in this area.

FINRA implemented a new review process on July 9, conducting financial advisor background checks with a public records search within 15 calendar days from the date of an applicant’s Form U4.

The protection of senior investors continues to be a priority for FINRA.  In the last three editions of its Annual Regulatory and Examination Priorities Letter, FINRA detailed how seniors are one of its major areas of concern.

Further, FINRA made some rule changes effective February 5, 2018 to equip FINRA members with new tools to protect senior and other vulnerable investors from financial exploitation.

Members may now place temporary holds on disbursements from accounts when they reasonably believe that financial exploitation has occurred, is occurring, or may be attempted.

Further, members must now solicit a trusted contact person for each retail customer account, and they may contact that person to address possible financial exploitation.

FINRA BrokerCheck

Many investors may still be unaware that FINRA offers a free tool to help investors make informed choices about brokers and brokerage firms-and provides easy access to investment adviser information.

FINRA’s BrokerCheck tells you instantly whether a person or firm is registered as required by law, to sell securities (stocks, bonds, mutual funds and more), offer investment advice or both. It also gives you a snapshot of a broker’s employment history, licensing information and regulatory actions, arbitrations and complaints.

This information is publicly available and provided to you by The White Law Group.  If you are concerned about investments you made with your brokerage firm, the securities attorneys at The White Law Group may be able to help you. For a free consultation with a securities attorney, please call 888-637-5510.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to the representation of investors in FINRA arbitration claims against brokerage firms throughout the United States.

For more information on The White Law Group, and its representation of investors, please visit our website at https://whitesecuritieslaw.com.





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