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reduce speeding tickets for drivers with whom they share a first name.
What about in the purely rational world of investing? Surely implicit egotism doesn’t influence analysts’ fore- casts or the funds we buy.
Researchers from UCLA and UC Berkeley find that it does. After examining 1.9 million U.S. earnings forecasts from 1992 to 2018, the authors show that analysts who share a first name with a CEO had more accurate earn- ings forecasts — 4.9 percentage points higher, on aver- age — than those with no such affinity. The effect was more pronounced when analysts and CEOs shared less common names.
The authors attribute the superior performance to the behavioural bias that leads us to favour people and things we associate with ourselves; in this case, CEOs privilege analysts with the same first name.
“[T]he greater affinity arising from the sharing of a first name will lead to a greater willingness on the part of the CEO to share private information with an analyst and will, in turn, manifest itself in increased forecast accuracy,” the working paper says.
The research raises a regulatory concern. The U.S. Securities and Exchange Commission’s fair disclosure
regulation prohibits publicly traded companies from dis- closing “material” private information to market profes- sionals. If the regulation were effective, the authors note, then analysts with the name advantage shouldn’t be out- performing peers.
The authors suggest that CEOs still use legal ways to share information with analysts, such as one-on-one meetings that “allow the analyst to take advantage of nonverbal communication in order to make inferences about the manager’s private information.”
How else might implicit egotism play into financial services? The authors point to research about mutual fund flows based on managers’ names. Maybe you have clients who found their way to you for more prosaic reasons than a glowing referral or a dazzling seminar — maybe it came down to your given name.
small talk
and will deal fairly, honestly and in good faith with their clients.”
Though charges or other negative informa- tion can be embarrassing, the fallout from a fail- ure to disclose can have worse consequences.
Erez Blumberger, president of AUM Law in Toronto and a former OSC deputy director of compliance and registrant regulation, says advisors likely won’t be refused registration based on disclosed criminal charges.
“Most charges are not directly relevant to the applicant’s ability to provide financial advice with integrity,” Blumberger says. “Integrity” in this context means clients can rely on and be confident in the advisor’s advice, he says.
He also notes that regulators require full information to make informed decisions about registration.
With most charges not affecting the advis- or’s ability to do their job, regulators likely won’t do anything beyond monitoring the registrant.
“They won’t typically impose terms and conditions or seek any sort of suspension,” Blumberger says. Such action would be “very aggressive,” he says, “because noth- ing’s been proven.”
Regarding the nature of disclosed charges, “nothing is fatal in and of itself,” Blumberger says. Each case turns on its own facts.
At an “opportunity to be heard” this year regarding a prospective registrant’s applica- tion, the OSC granted registration to a man convicted of possessing child pornography.
The OSC director (compliance and regis-
trant regulation branch) said the criminal conviction wouldn’t cause the commission to refuse registration “in this circumstance” after determining that the man had been honest with OSC staff during a voluntary interview about the conviction. The applicant disclosed the conviction, paid for his crime with jail time and monetary sanctions, and was remorseful, the decision said.
In contrast, the OSC refused registration earlier this year to a former registrant who repeatedly failed to disclose a driving under the influence (DUI) charge for which he was eventually acquitted.
“Undisclosed or misleading information will always require further review by [regula- tory] staff,” King said, which could lead to an application being delayed or refused.
King says firms also play a role in regis- tration. As “gatekeepers in the registration regime,” they must verify the information in applications and assess applicants’ suitability.
“We will hold individuals and firms accountable for false or misleading applica- tions, including not disclosing detrimental information,” she said.
Failure to disclose charges during an appli- cation process as well as false or misleading statements may constitute a provincial or criminal offence, the staff notice says, with significant sanctions.
As such, firms or individuals with questions about disclosure should contact registration staff before filling out an application, King says.
Blumberger says he’s never seen monetary
sanctions apply to a failure to update or dis- close information on an F4.
He also recommends advisors seek legal counsel before disclosure — especially if advisors are disclosing months after the fact. An employment lawyer can help position the delayed disclosure where, for example, men- tal health or stress played a role, he says.
When advisors delay, “they could be terminated,” he says. “Often it’s a condition of employment that you provide timely disclosure.”
If registration is denied because of a fail- ure to disclose, advisors may re-apply and be approved based on six factors, including evi- dence of trust in performing business duties, demonstration of remorse and the passage of sufficient time for deterrence purposes.
After denying the registrant with the undisclosed DUI charge, the director explicitly stated the man shouldn’t be barred from re-applying, noting his youth and remorse.
Late disclosure is “not necessarily fatal,” Blumberger says, “but it’s definitely going to impact your status with the OSC and your employer.” —Michelle Schriver
Advisors don’t need to disclose offences under the Youth Criminal Justice Act, speeding or parking violations, or charges that have been stayed for a certain length of time (at least six months for a
summary conviction offence; at least a year for indictable offences).
ISTOCK.COM / DRAFTER123
“Call Me by Your Name:
The Effect of Analyst-CEO First Name Commonality on Analyst Forecast Accuracy” by Omri Even-
Tov (Haas School of Business,
—Mark Burgess
UC Berkeley), Kanyuan Huang and Brett Trueman (both UCLA Anderson School of Management) was published as an SSRN work- ing paper in May 2020.
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