Performance Perspectives Blog

Ranking financial advisers … actual performance doesn’t count

by | Oct 10, 2016

Ranking financial advisers … skip their actual performance

Many individuals and institutions rely on the help of financial advisers to assist them in making investment decisions. They go by a variety of names (and spellings), including registered reps, wealth managers, and advisers or advisors. It’s therefore probably helpful to consult the results of independent bodies who rank these investment professionals, in order to select a good one.

I get most of my news from The Wall Street Journal, although I do check our local, central New Jersey, newspaper (HomeNews Tribune) each morning (when I’m home) to make sure my name doesn’t appear in the obituaries (a common practice among older folks). This weekend I stumbled upon an article about a Merrill Lynch financial adviser who has been “nationally recognized as one of the 200 TOP Wealth Advisors by Forbes Magazine.”


Apparently more than 40 other Merrill Lynch advisors are included on the list. Impressive! Congratulations! But wait …

Forbes’ criteria for ranking financial advisers

We learn that “Rankings are based on experience, revenue trends, compliance records, best practices, and interviews.” We also learn “Portfolio performance is not a criteria.” <emphasis added> And why not? Because of “varying client objectives and lack of audited data.”

Has anyone heard of the GIPS® standards: The Global Investment Performance Standards?

The message seems to be that we don’t really care how well you do your job,  but rather

  • what your experience is (not sure what that means; perhaps how long?),
  • if you’re able to sell your services and thus increase revenue (perhaps more about selling skills than investment acumen),
  • if you have good compliance records, employ “best practices” (not sure about that, either, as I’d expect GIPS compliance would be one),
  • and how well you interview (good interview skills = highly qualified adviser). 

Why not look at performance across common strategies?

I would think that there are probably some fairly common strategies that financial advisers offer. For example, when dealing with individuals, it’s not unusual for them to rank clients from very conservative to very aggressive, or from conservative to aggressive. Might they be able to construct composites of these accounts and provide a return for each, which could then be ranked? Morningstar and Lipper solved the problem of ranking mutual funds that invest in varying strategies, why can’t wealth management?

TSG is a verifier for several wealth management clients who claim compliance with GIPS.  And so, we know firsthand that many wealth managers / financial advisers do, in fact, claim compliance.

Surely, Forbes could rely upon GIPS compliance and such independent reviews when ranking financial advisers. Forbes would do the industry a great service by requiring GIPS compliance in order to be considered in their rankings. Talk about “best practice,” GIPS is best practice!

I think Forbes Magazine’s (@Forbes) criteria for ranking financial advisers needs some work. What say you?

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