BrightScope, which provides financial information and investment research, and The Spaulding Group, which offers performance measurement products and services, this morning proposed a performance standard for financial advisors.
"Today's technology allows consumers to quickly and easily search for and compare mutual funds, 401k plans, mortgages, and many other types of financial products online, but when it comes to financial advisors there is not an efficient way to select one based on performance," says a joint BrightScope and Spaulding news release. "Currently many advisors and broker-dealers do not calculate and do not disclose performance to the general public, making it difficult for prospects to select the right advisor and challenging for the best advisors to grow their practice. As a result, the act of selecting an advisor has been limited to personal recommendations, and what little information consumers can find on the SEC and FINRA websites.
The news release asserts that many advisors and broker-dealers do not calculate or disclose performance because there is no clear guidance or industry standard for doing so, "making it difficult for prospects to select the right advisor and challenging for the best advisors to grow their practice." BrightScope's release did not acknowledge the CFA Institute's standards for performance reporting or that the SEC provides a clear set of disclosures that must accompany reporting by investment advisors.
BrightScope has not been without controversy. Its initial product, a service rating 401(k) plans has been embraced by the media but criticized by some 401(k) experts, and its attempt to rate financial advisors has been criticized by some advisors who said the data BrightScope published about them was inaccurate.
"Over time, we envision that every financial advisor will want and need to disclose the performance of their investment selections on behalf of clients," said Mike Alfred, CEO of BrightScope in the news release. "As the leading performance measurement firm in the money management industry, The Spaulding Group's expertise is perfectly complimentary to BrightScope's vision, and together we're confident we can unify the industry around this new standard."
Spaulding and BrightScope announced formation of the Committee for a Universal Advisor Performance Standard. Advisors to the committee include John Rekenthaler, Vice President of Research at Morningstar; Ric Edelman, Chairman and CEO of Edelman Financial Services LLC; James Edmonds, Executive Director at Morgan Stanley Smith Barney; Joseph Klimas, Vice President of Portfolio Research & Consulting Group at Natixis; Franklin Tsung, President of Appcrown; Christopher L. Davis, President of Money Management Institute and Steven W. Stone, Partner at Morgan, Lewis & Bockius LLP.
A white paper on the performance standards proposal can be downloaded at www.uapstandards.org.