Photo credit: Library of Congress here
Photo credit: Library of Congress here
Forged by hard times: How recessions shape more ethical financial advisors
Law, K. K. F., and Zuo, L. (2021). How does the economy shape the financial advisory profession?. Management Science, 67(4), 2466-2482.
Key takeaways:
Financial advisors who begin their careers during economic recessions are significantly less likely to engage in professional misconduct throughout their careers compared to advisors starting in better economic times.
The lower misconduct of “recession advisors” is not fully explained by differences in their individual characteristics, initial job placements, or reduced opportunities to commit wrongdoing. Instead, entering the profession during tough economic times appears to persistently shape advisors' ethical behavior.
Economic conditions have a long-term impact on the financial advisory profession by altering both the types of individuals selected into the industry and imprinting those individuals with different professional norms and culture at career start.
Imposing stricter hiring standards and emphasizing ethical training for junior advisors could help reduce misconduct in the financial advisory industry over the long run, since early-career experiences have a lasting impact even as advisors advance professionally.