This paper examines the effectiveness of the warning signal, as imposed by MiFID, in limiting excessive trading of not literate investors, and the impact that the broker’s misconduct can have on this effectiveness. Our theoretical model suggests that an effective warning signal limits excessive demand for risky assets, making decrease transaction costs, thereby reducing broker’s profit. Investors’ payoff increases in the effectiveness. Broker’s misconduct negatively affects the effectiveness of the warning signal, making increase investors’ demand for risky asset and transaction costs, which entail a higher profit for the broker. Investors’ payoff decreases in misconduct. We then test these propositions empirically using a unique brokerage dataset. Our findings reveal that an effective warning signal involves that not literate investors trade less and pay lower transaction costs, but we do not find evidence supporting the notion that their performances increase in the effectiveness of the warning signal. Investors who suffer broker’s misconduct engage in more frequent trading and incur higher transaction costs, with both effects increasing as misconduct level rises.