Because of the many different types of account management, evaluating a financial adviser's effectiveness can be difficult. New technologies can help.
One of the most frustrating aspects of running separate accounts for clients is performance documentation. The majority of the accounts most FAs manage are model-based but there are always small differences and tweaks and variations for a host of reasons (unlike a mutual fund or a hedge fund) - this makes demonstrating performance very difficult in terms of regulatory compliance.
Technology has brought transparency to virtually every industry and my friends at Brightscope are committed to bringing it into the FA business as well.
Their latest project involves developing a new standard to help both advisors and their potential clients asses and display the actual results they've delivered.
There were two fundamental reasons why we chose to create BrightScope Advisor Pages. The first is that we felt consumers did not have easy online access to the information necessary to properly vet a current or prospective advisor. The second is that we believe that the financial advisory industry can accelerate its growth and increase its legitimacy by creating standards around performance, experience, certifications, fees, and conduct. The data necessary to build standards around experience, certifications, fees, and conduct for the most part already existed in public databases but simply needed to be aggregated intelligently so it could be used for comparative purposes. The data to build standards around performance does not exist at all because the industry has never coalesced around a single standard. 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 mostly limited to personal recommendations, and what little information consumers can find on the SEC and FINRA websites.
We think it’s time for a single new performance standard for retail financial advisors...
Full disclosure: I am a proud member of the Brightscope Advisory Board.