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  • Steven Lee

Latest Publication: Journal of Financial Regulation


Recently, my co-authors (Jeff Camarda, Pieter de Jong, and Jerusha Lee) and I received word that our paper, "Badges of Misconduct: Consumer Rules to Avoid Abusive Advisors" had been accepted in the Journal of Financial Regulation. This publication easily required the most work thus far. We began working on this close to three years ago beginning with a deep dive into the literature review and scraping data from the FINRA, CFP Board, and CFA Institute websites. After several rejections and paying out of pocket to enlist the services of a copy editor, our article finally found a home in a good journal.


The main takeaways from our article is that advisors (brokers--those who are licensed to sell securities on commission) with the CFP designation are much more likely to engage in misconduct than brokers who do not hold the CFP designation. By contrast, those holding the CFA designation are less likely (without controlling for other factors) to have misconduct disclosures on their Form U-4.


In addition, advisors who are dual-registered or "two-hat" advisors (those who can sell securities on commission and are also licensed to offer investment advice for a fee) are more likely to engage in misconduct than those who are just licensed to sell securities. This was one of the more interesting findings of our paper.


The key finding, however, is that CFPs who are also dual-registered are actually less likely to engage in misconduct while CFAs who are also dual-registered are more likely to have certain kinds of misconduct disclosures. We believe there are two different forces at work that are driving these findings.


The first is the unobserved effect of insurance-only advisors who also hold the CFP designation. The CFP Board does not require the candidate to hold any particular license (or any for that matter)--only that education, work experience, ethics, and exam requirements are met. Thus, to signal increased training, trust, and trustworthiness to prospects, these insurance-only CFPs could be driving misconduct as they sell double-digit commissioned insurance products like whole life insurance but more likely equity indexed and variable annuities.


The second factor we believe is driving these results is that being dual-registered and also holding the CFP designation means more education and learning for the advisor. There may be some interaction or reinforcement between being an investment advisor representative (IAR) who by law owes the client a fiduciary duty, as well as the CFP professional, which also carries a fiduciary duty. One would think that multiple fiduciary duties imposed upon the same person would be redundant. However, our results suggest that this may not be the case.


There could of course be other x-factors not previously considered that drive these results. Only time (and future research endeavors) will tell.





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