Reference
Gervais, Simon, and John Thanassoulis, “Ethics and Trust in the Market for Financial Advisors,” Duke University, Working Paper.
Abstract
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 fund which can frustrate clients’ inference through 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.
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