Why Financial Advisors Don’t Show Their Returns
- Posted by Frank Zorrilla
- on August 2nd, 2014
Financial Advisers: Show Us Your Numbers was an article written by Jason Zweig a couple of months ago that I think did not get much press, its mind boggling actually especially now when everyone with a blog is consider a pro and guru. Here are some tidbits from the article
- “I have to think investors would want to know that, but I don’t know how many are actually asking for it,” says Charles Rotblut of the American Association of Individual Investors in Chicago, a nonprofit with 170,000 members nationwide.
- “It’s baffling to me,” says Tim Medley, president of Medley & Brown, a financial adviser in Jackson, Miss., that manages $575 million and publicly updates its performance monthly online. “The advisory business has grown dramatically, and I would have guessed that by now a lot more advisers would be posting their rates of return on their websites.”
- Even so, most financial advisers remain reluctant to calculate their results. Jonathan Pond, president of Jonathan D. Pond LLC, a financial-advisory firm in Newton, Mass., that manages approximately $230 million, says he worries that the Securities and Exchange Commission would second-guess any such numbers, raising the potential for regulatory reprimand.
- “As a result, we absolutely do nothing as far as putting out performance data,” he says. “It will be a cold day in Hades before we put that sort of thing in a brochure.”
- Most investors probably won’t even go that far, says David Spaulding, head of the Spaulding Group, a firm in Somerset, N.J., that measures investment performance. “In a relationship business, many clients just say, ‘Why would I ask about numbers? This guy clearly knows what he’s doing.’ So nobody brings it up.”
- Another reason advisers don’t make these disclosures may be that they don’t know—or even want to know—their returns.
- “If an adviser says that every client is different, then how can he realistically be an expert on investing in all those different ways?” Mr. Fried asks. “And if they aren’t all different, then the adviser must have a few core strategies, and then the return for each of those can be reported.”
The way I see it, they are some real grey lines with showing performance which the rules themselves don’t make it clear for those who want to do it. I see some RIA’S that do it with a million disclosures, I have seen funds that say their numbers are hypothetical on their main site but are the same numbers that morningstar reports, so they are not really hypothetical. Like everything else in life for most people, if you have good numbers you want to show them and if you don’t then you don’t want to show them.
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Frank Zorrilla is the founder and chief investment officer of Zor Capital LLC.He began his Wall Street career 10 days after his 20th birthday when he became a Series 7 licensed stock broker. More »
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