In a recent Investor Watchdog (www.InvestorWatchdog.com) survey, 93% of respondents said they wanted increased transparency from financial advisors when they sell investment advice, services, and products. In particular, they wanted transparency for: Compliance records, education, certifications, experience, and licensing. This first form of transparency is more about you and your competence, ethics, and business practices.
There is a second form of transparency that investors want from their current financial advisors. You may already provide some of the information in the form of brokerage statements and performance reports. However, investors also want transparency for information that changes over time, for example, exposure to risk, investment expenses, your compliance record, and your client retention rates.
This demand for transparency is very similar to the Request for Proposal and reporting that is required by institutional investors such as large pension plans. Third parties, such as Investor Watchdog, have modified these services so they work for individual investors.
Investors, in particular those with larger asset amounts are beginning to use the services of third parties, such as Investor Watchdog to obtain advisor data for them.
For example, Watchdog provides a quarterly monitoring service that gathers 12 types of information from advisors. The information is provided to investors in a quarterly report.
The Watchdog website, which I am associated with, provides a number of additional tools investors can use to obtain information from prospective and current advisors. Watchdog also provides tools that educate investors when they evaluate, select, retain, and terminate financial advisors.
Advisors will thrive in a transparent environment if they have nothing to hide from investors when they sell their products or service existing clients. Transparency will help them build trust with investors and achieve competitive edge when they compete with advisors who do not practice transparency.
On the other hand, transparency will be a nightmare for advisors who withhold, misrepresent, or exaggerate information when they market financial products or service existing clients. Transparency forces them to disclose their weaknesses. The more demanding investors are about transparency the bigger their competitive disadvantage.
The data that appear in Watchdog reports already exists in various databases at FINRA, the SEC, State Securities Commissioners, State Insurance Commissioners, and various websites. Online background checking services also provide data about you. So transparency is already here, but it is tough for investors to use because it resides in so many different places. Watchdog’s role is to gather the data and produce easy-to-read and understand reports for investors.
It will take time for investors to embrace transparency as a service that helps them make informed decisions when they select new advisors and retain current advisors. However, it will grow rapidly as increasing numbers of investors realize transparency protects their financial interests. The media will expedite this understanding.
Jack Waymire spent 28 years in the financial services industry. For 21 of those years he was the president of a Registered Investment Advisory firm that licensed more then 300 professionals and served more than 50,000 investors. He left the industry in 2004 to market his book, Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor that was published by John Wiley. He also launched his first website in 2004,www.PaladinRegistry.com, that featured key content from his book and a service that profiled more than 300 pre-screened financial professionals. In excess of one million investors have used the information, tips, and services on this website. In 2008, he founded a second website, www.InvestorWatchdog.com, that provides free tools investors use to select and monitor all types of financial professionals. Waymire is a columnist for Worth magazine, frequently quoted in the media, and a regular contributor to major blog sites.
You Might Also Be Interested In:
Financial Advisor Transparency: Will it Benefit You? (Blog post by Jack Waymire, President & CEO, Paladin Registry)
8 Rules for Marketing Independant Advisory Firms (Blog post by Jack Waymire, President & CEO, Paladin Registry)
Understanding How Investors Choose an Advisor (Whitepaper)