Financial Gatekeepers and Investor Protection: Evidence from Criminal Background Checks

Don't let a wolf manage your hen house: Check advisor backgrounds 

Key takeaways:

• Financial advisors with criminal records prior to becoming advisors pose a significantly higher risk to investors, being over 30% more likely to later have customer complaints and engage in misconduct.

• Investors who use advisors with pre-advisor criminal histories are not compensated with better returns or lower fees, but do face a higher chance of their advisor being disciplined and barred from the industry.

• Brokerage firms that hire advisors with criminal backgrounds are more likely to be expelled or have their licenses revoked, forcing clients to find new firms and advisors.

• Criminal history, even from many years before becoming an advisor, is a meaningful red flag for regulators, employers, and investors to consider when evaluating an advisor's trustworthiness and risk.