The Relationship Between Ethics and Firm Turnover Among Investment Brokers

Abstract

Unethical brokers wreak havoc on the personal and financial lives of their clients. However, in order to have confidence that a broker is ethical, clients must be able to identify warning signs. The occupational and demographic history of brokers may hold clues to a broker’s ethics. For example, brokers who move from firm to firm may be doing so to avoid legal trouble. However, moving from firm to firm may also simply reflect ambition. Thus, research is needed to determine if turnover is a legitimate warning sign for unethical behavior. Study 1 used an archival sample from the Financial Industry Regulatory Authority organization (i.e., FINRA; www.finra.org) to replicate and extend previous findings that frequent turnover is a warning sign for unethical behavior. We found that having been banned from trading or having high amount disclosures was associated with more turnover and less time spent at each firm. Study 2 surveyed 235 full time workers in the financial sector. Although we found no evidence that firm turnover was associated with legal concerns, we did find a negative relationship between time spent at their longest appointment and legal concerns. This association remained even when controlling for personality, workplace culture, greed, and ambition. These findings contribute to a greater understanding of how demographic variables may be useful for flagging unethical brokers.