Death of a Salesman's Manager: Soft Information, Collusion, and Misconduct in Financial Advisory Firms *

Abstract

Using the sudden deaths of financial advisory branch managers as exogenous disruptions to the accumulated soft information between supervisors and advisors, we find that these deaths trigger a sharp decline in advisor misconduct that persists for several years before gradually returning to prior levels. This effect is particularly pronounced among advisors closely connected to the deceased manager, those engaged in more complex business activities, and in cases of misconduct requiring subjective judgment rather than clear-cut violations. These findings challenge the intuitive notion that more informed supervisors will curb unethical behavior. Instead, the results show that when supervisors face conflicting incentives to drive revenue and enforce compliance, accumulated soft information can foster collusion rather than prevent misconduct.

Keywords: Financial Advisors, Financial Misconduct, Household Finance, Collusion, Supervision, Information asymmetry, Ethics

JEL Classification: D18, G20, G24, G28, K22, D14, D82, L22, M12