CNBC pulled the criminal disclosure documents of 4,000 registered investment advisors in the U.S. and found that while many had run afoul of the law at one time or another, they’re actually more law abiding than the general population.
“Even if every financial advisor charged with a felony was convicted, that would still only be 1% of the group,” wrote CNBC’s Mark Fahey. “Compare that to the average adult American — almost 9 percent
of them have a felony conviction.”
The CNBC analysis found that 20% of registered investment advisors have filed a disclosure document with the state agencies where they are registered while 2% have reported felony charges or investment misdemeanours. All of these disclosures are kept in a massive database maintained by the SEC.
For example, here is the disclosure report
of Michael Kitces – an advisor well known to Canadian players. You will note on page six that Kitces’ writing and speaking activities are detailed in the “Other Business Activities” section of the disclosure document. If there were any criminal or disciplinary proceedings against Kitces, they would be listed on page 3 of the document under the “Disclosure Information” section. Given Kitces’ stellar reputation it’s not surprising the section is blank.
According to the SEC site there are two situations where information wouldn’t be available to investors. The first is where someone is exempt from registration and not required to file reports as Exempt Reporting Advisers; the second are those individuals who have filed unapproved applications for registration with the SEC or a state.
Perhaps the least surprising finding of the CNBC exercise is that many of the charges disclosed by advisors were rendered prior to 1994 when many of the advisors were still in their early 20s or younger – perhaps a case of sowing one’s wild oats.
Full disclosure is part of healthy wealth management industry says Ed Gjertsen, the national president of the Financial Planning Association. That said, it’s important that clients remember advisors are human too.
“It doesn't mean you automatically cut them off, it just means you have to have an additional conversation in regard to that specific event," Gjertsen said. "There are plenty of people who I'm sure have some sort of checkered past, but nothing egregious, and you don't want to just discount them flat out — it's just additional information."
To read the CNBC story click here