Can Ethics be Taught? Evidence from Securities Exams and Investment Adviser Misconduct

50 Pages Posted: 10 Oct 2019 Last revised: 23 Oct 2019

See all articles by Zachary T Kowaleski

Zachary T Kowaleski

University of Notre Dame - Department of Accountancy

Andrew Sutherland

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Felix Vetter

London School of Economics & Political Science (LSE) - London School of Economics

Date Written: September 27, 2019

Abstract

We study the consequences of a 2010 change in the investment adviser qualification exam that reallocated coverage from the rules and ethics section to the technical material section. Comparing advisers with the same employer in the same location and year, we find those passing the exam with more rules and ethics coverage are one-fourth less likely to commit misconduct. The exam change appears to affect advisers’ perception of acceptable conduct, and not just their awareness of specific rules or selection into the qualification. Those passing the rules and ethics-focused exam are more likely to depart employers experiencing scandals. Such departures also predict future scandals. Our paper offers the first archival evidence on how rules and ethics training affects conduct and labor market activity in the financial sector.

Keywords: ethics; ethics training; compliance training; financial misconduct; financial regulation; fraud; investment advisers; labor economics

JEL Classification: D18, G20, G24, G28, G34, G38, J44, M41, M53

Suggested Citation

Kowaleski, Zach and Sutherland, Andrew and Vetter, Felix, Can Ethics be Taught? Evidence from Securities Exams and Investment Adviser Misconduct (September 27, 2019). Available at SSRN: https://ssrn.com/abstract=3457588 or http://dx.doi.org/10.2139/ssrn.3457588

Zach Kowaleski

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Andrew Sutherland (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street

Felix Vetter

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

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