BrightScope And Spaulding Group Propose Universal Performance Standard For Financial Advisors

Tuesday, May 22, 2012 09:05
BrightScope And Spaulding Group Propose Universal Performance Standard For Financial Advisors

Tags: Advisor businesses | client communications | Portfolio Management Software | RIAs

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.

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"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



Comments (2)

Great concept, bad implementation. The benchmarking and risk parameters are the same as institutional money managers, ie, blended indexes.

Investors need to select their own benchmarks, ie a rate of return.
brentb843 , May 22, 2012
The AIMR PPS, predecessor to the current GIPS, were drafted in 1992 and have been evolving ever since. I was on the Board of IMCA at the time and we felt it was important to have a consultant version of performance reporting standards. Money managers had GIPS and advisors had "The Consultant's Performance Standards" (CPS). I chaired the Consultant's Performance Standards Task Force, which comprised 30 leading institutional consulting firms. Like these new Spaulding-Brightscope UAPS standards, the CPS standards embraced GIPS and provided relief in key areas for advisors. The UAPS does the same, specifically allowing the inclusion of non-discretionary accounts in composites. This one is a real stopper for me. How can an advisor take credit for the performance of an account that he does not control?

But that's not what matters. The CPS have drifted into obscurity because consultants don't need them to get business and no one wants to take the time to calculate composites in the prescribed manner. Too much work for not enough benefit. Some did report house numbers, but competitors were quick to discredit the results. Audits could be next, but come on now.

Like GIPS standards, the UAPS are voluntary. Also like GIPS, the UAPS have no teeth -- the CFA Institute does not enforce or police compliance and neither will Brightscope-Spaulding. The real teeth are with the SEC and FINRA, who will shut you down if they find that you have falsely claimed compliance because that is fraud. Is it worth the risk? You might think you're compliant, or deceive yourself into thinking you are, but the SEC could find that you are not.

In short, the UAPS are a noble effort that has been tried before by a joint task force of 30 leading consultant firms. Little has changed to make consultant standards viable this time.
ronsurz , May 23, 2012

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