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May 11, 2016 at 12:48 PM
Sen. Elizabeth Warren, D-Mass., asked Financial Industry Regulatory Authority CEO Richard Ketchum Wednesday to tell her by June 15 how the self-regulator plans to rein in broker misconduct.
In a Wednesday letter, Warren along with Sen. Tom Cotton, R-Ark., queried Ketchum on the steps FINRA is taking to address advisor misconduct in order to protect investors.
The senators asked Ketchum what “specific steps” FINRA is taking to address “unacceptable levels” of advisor misconduct across the financial services industry; cracking down on the “high rates” of recidivism among brokers with a disciplinary history; and beyond more disclosures in BrokerCheck, how FINRA is tackling the problem of firms that employ “a large share” of brokers with a disciplinary history.
Ketchum told The Wall Street Journal on May 9 that BrokerCheck database would now include new disclosures about where brokers accused of misconduct concentrate.
Warren cited a February National Bureau of Economic Research working paper analyzing data from BrokerCheck, finding that one in 13 advisors have a misconduct related disclosure on their record. The study also found that only about half of advisors who committed misconduct lost their jobs, with 44% of those obtaining a job at another advisory firm within a year.
“Although the vast majority of professionals in the industry conduct themselves ethically, patterns of misconduct highlighted in the study are concerning,” Warren and Cotton wrote. “The risks to investors posed by advisors with a disciplinary history are disturbing – but they are not unpredictable … FINRA is responsible for addressing the risks posed by these brokers and firms so that investors can obtain the scrupulous, high-quality financial advice they deserve.”
