The Internet age has made it simple to seek out the most suitable professionals in nearly every field - or the costs and performance of financial products - but when it comes to objectively selecting a good financial advisor, the industry is still lagging behind in that regard.
A new white paper authored by financial research firm BrightScope and the Spaulding Group suggests that a universal standard be adopted that helps consumers pick a financial advisor based on performance.
At present, that's a difficult task, given that most advisors and broker-dealers do not calculate or disclose their performance to the public, making it difficult for consumers to decide who to enlist for help - and also making it a challenge for advisors to differentiate themselves in a crowded marketplace.
That's led consumers to find advisors based on personal recommendations, a little word of mouth or random Google searches, or try to use the limited information available from the SEC and FINRA.
BrightScope and Spaulding's Universal Advisory Performance Standards document envisions a world where advisors and broker-dealers will in fact want to disclose the success (or lack thereof) of the investments they've made on behalf of their clients.
The two organizations are floating a trial balloon to see if a new industry wide standard can be estabished, a move they feel with benefit both consumers and the financial services world, as well.
The companies have founded the Committee for a Universal Advisor Performance Standard, enlisting the help of representatives from Morningstar, Edelman, Morgan Stanley Smith Barney, Natixis, Appcrown, the Money Management Institute and Morgan, Lewis & Brockius.
"BrightScope Advisor Pages has done a good job to bring transparency into the marketplace, however since there is no clear guidance or industry standard, many advisors refrain from reporting performance out of fear they might run afoul of SEC and FINRA advertising regulations," said David Spaulding, president of The Spaulding Group, Inc.
"When there is a single standard created specifically for the money management industry, individuals will understandably assume that it applies to them, when it may not. As a result, there can be confusion as well as the use of something that is less than appropriate. By introducing a new standard, specifically designed for financial advisors, we should see increased reporting; it will also allow investors to make a more informed decision on which professional is best qualified to serve them."