Real Estate Shocks and Financial Advisor Misconduct
56 Pages Posted: 14 Jun 2018 Last revised: 29 Nov 2018
Date Written: November 28, 2018
We test whether household wealth shocks affect professional misconduct by financial advisors. We use a panel of advisors' home addresses and examine within-advisor variation relative to other advisors who work at the same firm and live in the same ZIP code. We show that advisors increase misconduct following declines in their homes' values. The increased misconduct is due, in part, to willful actions, such as churning. We show that advisors' housing returns explain misconduct targeting out-of-state customers, breaking the link between customer and advisor housing shocks. Further, the results are stronger for advisors with lower career risk from committing misconduct.
Keywords: Financial advisors, Brokers, Financial misconduct, Fraud, Household finance, Real estate, Bankruptcy
JEL Classification: G20, G24, G28, K22, R31, D14, D18
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