The Market for Financial Adviser Misconduct

We document the economywide extent of misconduct among financial advisers and the associated labor market consequences. Seven percent of advisers have misconduct records, and this share reaches more than 15 percent at some of the largest firms. Roughly one-third of advisers with misconduct are repeat offenders. Approximately half of advisers lose their jobs after misconduct. The labor market partially undoes firm-level discipline by rehiring such advisers. Firms that persistently engage in misconduct coexist with firms that have clean records. We show that this phenomenon may be explained by some firms "specializing" in misconduct and catering to unsophisticated consumers.