Financial advisory industry's image problem


DealBook offers a sobering conclusion when it comes to the issue of advisor fraud, noting a "persistent problem" with policing the industry, "even after the wave of rules enacted since the collapse of Bernard L. Madoff's giant Ponzi scheme in 2008."

The financial advisory industry indeed has something of an image problem that doesn't seem to be getting better.

The article notes that, "The challenge of oversight is not becoming any easier, with the ranks of financial advisers swelling. As new regulations crimp profits, big banks like Wells Fargo are ramping up their brokerage businesses in an effort to make up for lost revenue. Amid the renewed focus, banks have spent millions of dollars to beef up their compliance systems and improve their oversight. Regulators, too, have bolstered their efforts, increasing enforcement and adopting new measures. Every month, the Financial Industry Regulatory Authority, a Wall Street watchdog, penalizes more than 100 brokers for various actions, including unauthorized trading and fraudulent activities, as well as smaller violations."

The article highlights an interesting scheme where a broker made trades for clients, cancelling winning ones after the fact. He then pocketed the profits, unbeknownst to the client.. The silver lining here is that internal systems at Wells Fargo caught the scam. The broker will be sentenced soon.

For more:
- here's the article