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Session Chair: Jawad M. Addoum, Cornell University Discussant: Shaun Davies, CU Boulder
Location:Room 1212
Presentations
Ethics and Trust in the Market for Financial Advisors
Simon Gervais1, John Thanassoulis2,3,4
1Fuqua School of Business, Duke University; 2Warwick Business School, The University of Warwick; 3CEPR; 4UK Competition and Markets Authority
We construct an overlapping generations model of financial advisors, who have ethics, are hired competitively, interact with strategic investment funds, and are regulated. Misconduct is the outcome of the tension between the endogenous career concerns created by a competitive labour market rewarding good advisor behaviour and the strategic investment fund which can frustrate clients' inference by paying commissions to alter advisor incentives. We characterise market conditions leading to high misconduct. We offer a prediction as to the pattern of misconduct as wealth inequality increases. And we establish when, over the course of a career, financial advisors are most trustworthy.
