Barron's offers insight but declines interview about Top 100 study

I published an article on Saturday listing 10 things to consider when looking at Barron’s new Top 100 list of independent advisors. I wrote the article based upon interviews with advisors and industry executives in addition to my own observations.

Because it was Saturday, I was unable to reach Barron’s editors to get their side of the story. I e-mailed them on Tuesday requesting an interview. Today I received a reply with this message from Matthew Barthel, associate editor of Barron’s who oversees the study.

“We’re going to decline the offer of an interview, mainly because we said what we wanted to say about the methodology within the text of the article,” he writes in an e-mail. “The rankings formula is proprietary and needs to remain that way for competitive reasons.”

In fact, I didn’t ask for more of the ingredients of Barron’s formula in my e-mail to him. I asked for clarifications of and the rationale behind some of the study’s stated methodologies.

The methods Barron’s uses for its Top 100 Independent Financial Advisors emphasize how large a book of business is controlled by individual advisors. Less attention seems to be paid to the quality of the care or the investment performance of the advisors. The study also appears to show bias against advisors whose books of business are under the firm’s name, not their own.

I hoped Barron’s would respond to these concerns and to explain its thinking about why it tilts so heavily in the direction of big producers. [Barron’s says in its newspaper that big producers “generally” perform better or they wouldn’t have accumulated such a large book of business.] One wonderful aspect of independent advisors is that they do not live under the produce-or-perish mandates of wirehouse brokers. Barron’s seems to have created a produce-or-be-left-off-the-list ethic that harkens back to this Wall Street world, some advisors and executives say.

The study’s title may be misleading because “top” connotes far more than asset-gathering prowess to many people, says Adam Bold founder of The Mutual Fund Store, which has about $4.2 billion of assets under management.

“The problem here is that Barron’s has their methodology but the issue is people perceiving this [“top” designation] differently than what it really is,” he says. “I would perceive this [“top”] to be the best advisors in the country and they’ve excluded alot of great advisors.”

Barron’s invests significant time and resources into having its Top 100 studies reflective of what advisors consider to be fair ranking criteria, according to Barthel.

Barron’s is very serious about ranking FAs

“We’re very serious about ranking FAs,” he writes in the e-mail. “I am a Barron’s editor in charge of the rankings, and we’ve got two people working exclusively and full-time on them. We talk constantly (literally: every day) to FAs about the way we rank them, and we take their opinions very seriously.”

In the explanation of its methodology in the article on Saturday, Barron’s says that it can’t incorporate investment performance into its rankings because advisors don’t have audited financial statements.

Bold believes that Barron’s could measure the more relevant statistic of asset growth and account retention by digging in to an RIA’s ADV that it files with the Securities and Exchange Commission. “I don’t think people are lying on their ADV,” he says.

The other matter I wanted clarified by Barron’s was who is in charge of the study. The person behind Winner’s Circle, the study’s founder, has always been R.J. Shook and some advisors believe that he still runs the studies under Barron’s. This is not at all the case, Barthel says.

“Barron’s purchased The Winner’s Circle from R.J. Shook just about a year ago,” he writes. “R.J. is a consultant for Barron’s conferences and answers the occasional question [and offers opinions] on something rankings related. But in general the rankings are all Barron’s.”

Editor’s note: On Saturday I said that I believe that the publication of Barron’s Top 100 lists are a net gain for independent financial advisors. It raises the profile of this relatively obscure group. I also believe Barron’s helps to unify the industry with its conferences. And I’ve been at enough publications to know the challenges of creating perfectly fair lists. Still, I think Barron’s would do itself and the advice industry a favor by taking more aggressive steps to refine its methodology. Advisors who get the “top” label aren’t likely to speak up. Losers have fears of speaking out and jeopardizing their future chances. Barron’s has an opportunity to be ahead of the curve with the burgeoning world of independent advisors with its studies. But it would help to be more open about how they define a top advisor and that openness by a flagship newspaper of Dow Jones, a bastion of great business journalism, could include the practice of taking interviews with reporters.