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The new gender challenge

Male advisors do more bad things, but female advisors face stiffer punishments

Who knew there was a double standard for misbehaving financial advisors? Surprise!

According to a study by the University of Chicago School of Business Stigler Center, male financial advisors are three times more likely to behave badly than their female colleagues, but the women are more likely to be penalized more harshly.

As reported in InvestmentNews, there is no equality in punishments for equal bad misconduct for male and female advisers. In fact, say researchers Mark Egan, Gregor Matvos, and Amit Seru, following an incident of misconduct, women advisers are 50 percent more likely than male advisers to be fired or separated from their jobs. Moreover, in their paper titled, “When Harry Fired Sally: The Double Standard in Punishing Misconduct,” they found that women advisors also faced longer periods of unemployment and were 30 percent less likely to find a new position in the industry within a year.

Better to be a bad guy than a bad gal

According to the University of Chicago report, one in 11 male financial advisers on average have records of past misconduct, compared to one in 33 female advisers. Worse yet, past misdeeds will impact the future of women advisors than men. According to the researchers, badly behaving male advisors are still nearly 80 percent as likely to be promoted as their law-abiding brethren. So being a “bad boy” isn’t necessarily a career killer. Being a “bad girl” is. Badly behaving women are 67 percent less likely to be promoted relative to other female advisers, the researchers found.

Propensity to repeat offend is gender specific

Male advisers with offenses are twice as likely as women to offend again. Worse yet, their misdeeds are 20 percent more costly for their firms to settle. Nonetheless, female advisors are 42 percent more likely to lose their jobs than male advisers at the same branch following an incidence of misconduct. This is especially true in branches where they are the sole women. By contrast, firms with equal representation of male and female executives or owners discipline male and female advisers at similar rates.

Regardless of gender, bad actors still cost your firm

According to the researchers, there are substantial differences in the punishment of misconduct across genders. Although both female and male advisers are disciplined for misconduct, female advisers are punished more severely.

Following an incidence of misconduct, female advisers are 20 percent more likely to lose their jobs, and 30 percent less likely to find new jobs relative to male advisers. The women face harsher punishment despite engaging in less costly misconduct and despite a lower propensity towards repeat offenses. This is regardless, according to the evidence gathered, of productivity differences across advisers. And interestingly, most of the complaints against female advisors are not initiated by customers or regulators, but by the employing firm.

Are you exposed?

The University of Chicago study cracks opens the door to some interesting exposures for broker-dealers, RIAs, and IBs. Are you protected? Do you have the systems in place to nip potential issues in the bud? Do you have appropriate written supervisory procedures in place? Are you executing appropriate branch audits? Are you monitoring the outside business activities of all genders? The University of Chicago report does identify some not-so-well-known exposures. Ignore them at your peril.

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