FINRA is warning parents that the financial advisors they hire could be at risk of insider trading.
In a new study, the Financial Advisers Association (FAI) finds that the average financial advisor is the biggest insider trader in the industry, with more than 20 percent of its members trading on insider information.
The study, published in the journal of Applied Behavioral Science, found that there are more than $5.5 billion in market-moving trades made every year by financial advisors, including over $1.3 billion on stocks and over $300 million on commodities.
The research, by researchers at the University of Pennsylvania, looked at how many trades a financial advisor made in the six months leading up to January 2019, using data from a sample of 3,800 advisors in more than 2,000 advisors.
The researchers found that the biggest source of trading insider information was a person’s personal financial information, including their family tree and education history, which they could use to obtain a better return on their investment.
The other big source of insider information were market moves by financial advisers and their clients, the researchers found.
They also found that over half of advisors who participated in these trades had been identified as insiders before.
But the researchers noted that the researchers could not draw definitive conclusions about whether the amount of trading activity by advisors is widespread, or even whether it is a problem.
The authors suggest that regulators should be more aggressive in curbing insider trading, including tightening rules on the compensation of advisers, making it harder for advisers to take advantage of their positions by moving on the market at all, and imposing penalties for those who violate rules.
This article was first published by Business Insider.
