Career Incentives, Risk-Taking, and Sorting Dynamics: Evidence from Top Financial Advisers

We examine how career concerns influence the behavior and mobility of financial advisers. Drawing on a uniquely comprehensive matched panel that combines employer-employee data with a longstanding national ranking, our study tests predictions from classic career concerns models and tournament theory. Our analysis shows that, in the early stages of their careers, advisers destined for top performance differ significantly from their peers. Specifically, before being ranked, these advisers are twice as likely to obtain a key investment license, experience customer disputes at rates up to seven times higher, and transition to firms with 80% larger total assets. Moreover, we find that top advisers mitigate the potential costs of their higher risk-taking by facing reduced labor market penalties following disciplinary actions. Leveraging exogenous variation from the staggered adoption of the Broker Protocol through an event-study framework, our results reveal dynamic sorting: firms attract high-performing advisers intensely within a short post-adoption period. These findings shed new light on the interplay between career incentives, risk-taking, and labor market outcomes in the financial services industry, with important implications for both firm performance and regulatory policy.