Top 10 Financial Advisor Firms With Highest Misconduct Rate

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There is a famous quote that Charlie Munger uses as an example of the inversion technique:

Tell me where I’m going to die, so I won’t go there.

Instead of focusing on things we should to help us, we can also simply avoid doing things that will hurt us. Don’t do drugs. Don’t gamble.

I can’t provide a clear roadmap to finding a great financial advisor. But after reading through the SSRN research paper The Market for Financial Adviser Misconduct mentioned yesterday, I certainly know what to avoid. Here’s my version of the Munger quote:

Tell me where I’m most likely to be mistreated financially, and I won’t put my money there.

These are the top 10 firms ranked according to the percentage of advisors who been disciplined for misconduct, as based on the FINRA BrokerCheck database. This list is restricted to firms with at least 1,000 advsiors.

  • 20% Oppenheimer & Co.
  • 18% First Allied Securities, Inc.
  • 15% Wells Fargo Advisors Financial Network, LLC
  • 15% UBS Financial Services
  • 14% Cetera Advisors, LLC
  • 14% Securities America, Inc.
  • 14% National Planning Corporation
  • 14% Raymond James & Associates, Inc.
  • 13% Stifel, Nicolaus & Company, Inc.
  • 13% Janney Montgomery Scott, LLC

Yes, you read that right, 1 in 5 advisors employed by Oppenheimer & Co have at least one misconduct-related disclosure in the their files. All of these firms above have incident rates roughly double that of the overall advisor population. Mix in the information we learned previously about the high likelihood of being repeat offenders, and it’s quite simple to avoid putting your hard-earned money anywhere near these firms.

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  1. Interesting that both ubs and Wells Fargo are in the top and bottom lists. Financial advisor arms are high and securities arms are at the bottom.

  2. Cooper's Dad says:

    Cetera provides third party brokerage services sold by many small banks under their own names in the u.s. so the Cetera name may not be immediately recognizable. However in these cases, the advisor is actually the bank employee not Cetera’s, so those bank clients should not be concerned by its appearing on this list.

  3. Focusing on disciplinary actions is definitely worthwhile and an easy metric to apply, but definitely isn’t adequate. There are plenty of advisors who have never been disciplined and may never have even broken the rules who are still ripping people off. To me the biggest worry associated with hiring an advisor is whether they are going to put you into products that suite you and minimize your post-fee returns, or is just going to stuff you into their firm’s products or the products that promise them the highest compensation.

  4. I have to say that I’ve been disappointed the two times that I’ve attempted to work with financial advisors. In both cases, I chose to work with firms that specialize in advice to US expatriates, but at the end of the day concluded that the advice simply wasn’t worth the percentage of AUM that they annually charge.

    You can go to Betterment, Wealthfront or Schwab Intelligent Portfolio service, walk through their risk assessment tools, and will be proposed three similar but different allocations. The allocations proposed by the two advisors with whom I worked were similar, but equally different.

    And none could provide a convincing answer to the question of why I should switch away from the allocation in which I’ve always invested (the Permanent Portfolio).

    • Unlike buying a car or any other big ticket item, making a wrong investment decision will take a long to ratifying your financial situation and may extend your years in the workforce. There are always some bad actors in all professions, but that’s where you’re better served doing your diligence. Seek and you will find.

  5. Kara Russell says:

    Is this Discipline in house and self reported? Or is it by a regulatory party? Because if it is in house and self reported, those with low discipline rates may just not be disciplining or reporting advisor misconduct.

  6. I was wondering what kind of misconduct might be involved. I mean it could be minor stuff or not.

    Check out Oppenheimer’s info at FINRA:

    If you look at the disclosures section theres a detailed report that is ~300 pages of their criminal behavior.
    Fine after fine after fine… some of it seems trivial “failed to noitify” but some of its very major. Note these are the disclosures for the company, not the individual brokers. But there is a lot of “failed to supervise” in there that means a broker did something bad then Oppenheimer was fined for it because they weren’t watching their own shop. I only read the first 10 and #4 was a $20 million fine by the DOJ and #10 was failing to supervise a broker who stole $6 million from customers.

    Also note that it says under the table that they restrict the list to firms with over 1000 brokers. And a lot of the companies on the lists have 1000-1300 brokers. I’d suspect that there could also many other well known companies that have ~900-1000 brokers but were too small to be on the list.

    • When I looked through the one for Wells Fargo Financial Advisor Network, I felt that a lot of them were basically “broker recommended X but they shouldn’t have” where X was buying upfront loaded mutual funds, unnecessarily selling current mutual funds in order to generate commissions, or selling “unsuitable” investments. Churning, breach of fiduciary duty, unauthorized trading, etc.

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