Where financial advisors grew up influences their business ethics

A new study reveals that when financial advisers have been raised play an important role in establishing their basic ethics code, which has a significant impact on their professional behavior as adults. More specifically, the researchers found that when the advisers grew up significantly predicted the probability that they were engaged in professional misconduct in adulthood, which they worked in the same area where they were raised.

“This study underlines that the environment in which we grow has a lasting impact on us as adults, and that efforts to promote ethical behavior in the financial advisor’s industry should take these cultural factors into consideration,” explains Jesse Ellis, co-author of an article on work. Ellis is the distinguished professor of Alan T. Dickson of financing at the Poole College of Management of the North Carolina State University.

“Previous research has revealed that one of the 13 financial advisers had committed at least one documented case of misconduct, and that the advisers who committed a fault generally remained in the industry,” explains Ellis. “The sector of financial advisers is particularly subject to a fault because customers generally lack the expertise necessary to assess the value of the product or service they obtain. And this means that advisers can get involved in a fault that allows them to earn more money at the expense of their customers.

“Regulations to limit this fault may be difficult to apply, which means that the main protection against fault is the commitment of each advisor to ethical conduct,” explains Ellis. “So, given the vulnerability of the sector to fault, we wanted to know more about what could influence these behaviors contrary to ethics.”

For the study, the researchers examined the data on 86,766 financial advisers, as well as data of 2,489 counties where these advisers grew up and 1,720 counties where these advisers worked as adults. The researchers also collected information on the a history of misconduct of each financial advisor from data accessible to the public collected by the Financial Industry Regulatory Authority (FINRA) and the state regulation agencies.

To assess the impact of the childhood environment of an advisor, the researchers used an index that was developed to measure “bad behavior”. This index examines data on six categories of poor behavior: financial misconduct by companies, local political corruption, misconduct of financial advisers, backdating of the purchase options, spouse infidelity and inappropriate financial relations between doctors and pharmaceutical companies. Each county received a score – the higher the score, the higher the level of driving.

“We found that there was a solid relationship between the place where the advisers grew up and the probability that a advisor had a fault,” said Ellis. “Basically, the more the scoring of the index of bad behavior of the hometown of an advisor is high, the more likely it was that the advisor was engaged in the fault. This was true, that the advisers operated in the same region where they grew up, and it was true even when we represent a multitude of demographic variables.

“This does not mean that someone in an area with a high score of poor conduct will certainly behave in an ethics,” explains Ellis. “However, this strongly suggests that the cultural norms in which advisers are developing an important role in the formation of their ethical foundations.

“We think that the work we have accomplished here brings home to what extent the ethical foundations are deeply rooted in individuals, and that surface ethical training efforts are insufficient to reduce misconduct,” explains Ellis. “We are optimistic that these results will lead decision -makers and the business world to develop and implement more substantial efforts to influence the behavior of advisers significantly.”

The document, “the children’s exhibition for bad conduct and the culture of financial misconduct”, is published in the Financial studies review.