Regulatory Leakage Among Financial Advisors: Evidence From FINRA Regulation of 'Bad' Brokers
Date
2023
We create a single database containing four categories of financial advisors: (1) brokers regulated primarily by FINRA, (2) investment advisers regulated by the SEC, (3) investment advisers regulated primarily by state regulators, and (4) insurance producers. There is significant overlap across the categories; more than 40% of the advisors are registered with more than one regulator. We examine how this regulatory fragmentation intersects with regulatory discipline by studying two FINRA rules designed to nudge “bad” brokers out of FINRA’s regulatory regime. Although the rules caused thousands of high-risk brokers to exit the FINRA broker regime, 98% of those who exited are currently registered with state regulators as insurance producers.
Citation
Colleen Honigsberg, Edwin Hu & Robert J. Jackson, Regulatory Leakage Among Financial Advisors: Evidence From FINRA Regulation of ’Bad’ Brokers (2023).