The Birth of Financial Advisor Performance Standards

Jason Zweig takes on the new zeitgeist of financial advisor performance measurement in his Intelligent Investor column this weekend.

My colleagues at Brightscope (where I am a member of the advisory board) are leading the charge in this arena as I’ve mentioned before.  I think trying to shed light and bring data to this previously unlit corner or our industry is an admirable goal, but it is not so simple as one would guess.  Advisors are typically not just money managers with a single account to track in the traditional sense – truly tailored financial advice means having many accounts that are not cookie-cutter, with different strategies and risk-mitigating features and asset class weightings and timeframes – which inherently means different track records.

Here’s Jason:

How good is your financial adviser, anyway? Chances are, nobody—including your adviser—knows for sure.

That is starting to change, but getting better measures of advisers’ performance isn’t going to be easy.

Two companies—BrightScope, a San Diego-based financial-research firm, and Spaulding Group of Somerset, N.J., which specializes in measuring investment performance—recently announced a joint proposal to standardize how stockbrokers and planners report their returns to prospective and existing clients.

The CFA Institute, a nonprofit association of financial analysts, also is working on new standards for presenting returns to retail clients, says an executive director there, Jonathan Boersma.

Most large investment-advisory firms comply with strict rules on performance reporting set by the CFA Institute. But so far at least, at small advisory firms—as well as at large brokerages—performance reporting remains a Tower of Babel. Under the law, advisers can’t lie or mislead about their returns, but otherwise, says David Spaulding of Spaulding Group, “there are no rules.”

Keep Reading:

New Ways to Weigh an Advisor (WSJ)

Read Also:

Mike Alfred: Time for a Unified Standard for Financial Advisor Performance (TRB)







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