Every day, financial advisors take perhaps the toughest ethical test in America. Entrusted with managing more than $30 trillion in assets by clients who are relatively naïve in the ways of financial markets, they face constant temptations and opportunities for self-enrichment. Seen in this light, it may be no wonder that around 7% of financial advisors have a record of misconduct. Instead, we might marvel at the fact that 93% have apparently kept their nose clean.

In a recent paper for Journal of Corporate Finance, Lei Gao, associate professor of finance at the Donald G. Costello College of Business at George Mason University, studies how one unexpected factor—local religiosity—affects advisor ethics. Gao's findings have ethical implications for all employees whose jobs present opportunities for illicit gain.

Gao's co-authors were Arnold R. Cowan of Iowa State University, as well as Jianlei Han and Zheyao Pan of Macquarie University.

The researchers used a data-set tracking misconduct among 462,000 U.S.-based financial advisors, which they cross-referenced with county-level religiosity (i.e. church membership) information from the Association of Religion Data Archives. They found strong evidence of an inverse relationship—the more religious a county was, the less misconduct was found among financial advisors working in that area.

In this context, "misconduct" refers to any financial issues, disciplinary actions or customer disputes disclosed to the Financial Industry Regulatory Authority (FINRA).

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