A new academic study suggests financial advisors can essentially become more ethical through greater exposure to material on rules and ethics.

About 8% of the 630,000 financial representatives and investment advisors registered with Finra have a black mark on their record, according to an analysis of BrokerCheck, writes Andrew Gordon Sutherland in The Conversation, a non-profit source of news and commentary distributed by the Associated Press.

Sutherland says he and his co-authors analyzed close to 1.2 million financial representatives and investment advisors working at U.S. broker-dealers between 2007 and 2017.

Sutherland is a professor at the Massachusetts Institute of Technology who wrote the report with co-authors at the University of Notre Dame and the London School of Economics.

Their focus, according to Sutherland, was a 2010 change in the Series 66 exam.

The Series 66 is the Uniform Combined State Law Examination, designed to qualify candidates both as securities agents and investment advisor representatives.

Before 2010, 80% of the Series 66 exam questions covered securities laws and regulations on unethical business practices, or “rules and ethics,” and 20% covered investment products and capital market theory, or “technical material,” Sutherland writes.

In 2010, the two sections were given equal weight, according to Sutherland.

It turned out that advisors who passed the older exam — the one with more rules and ethics-related questions — were one-fourth less likely to engage in misconduct in any given year after passing the exam, according to the study, the results of which will soon be published in the Journal of Financial Economics, Sutherland writes.

To put it another way: When the researchers analyzed advisor departures from Wells Fargo in the wake of the 2016 bogus-account scandal at the company’s retail bank, they found that those who had passed the older exam were the most likely to leave, according to Sutherland.

Perhaps more interestingly, when the researchers analyzed departures prior to when a scandal occurred at various broker-dealers, they found that departures of advisors who had taken the older exam correlated with the likelihood of a scandal breaking at the firm the following year, he writes.

The researchers also found that the biggest impact, as far as the reduction in content covering rules and ethics, occurred among the least-experienced investment advisors, according to Sutherland.

This suggests that the exam has a “priming” role: Early exposure to material on ethics and rules leads professionals to behave better later, he writes.

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