Financial Advisors Ratings – The 5 Challenges

financial advisors ratingsInvestors will have more voice when they rate the quality of their financial advisors. Consumers have shown a propensity for reviewing the experience of others before they choose a restaurant. Now, they will be able to review financial advisors ratings the same way. But, not before five challenges are overcome.

Challenge 1:  100 people can write reviews for the same entrée at the same restaurant. This creates a critical mass of varying experiences that help other potential customers make the right decisions. However, all 100 people have different financial advisors. If each one rates the quality of his financial advisor, that is only one review per advisor. There is no critical mass of reviews that helps consumers make better decisions when they select and retain financial advisors.

Challenge 2:  Rating a steak is a lot simpler than financial advisors ratings. Either the steak was tender and flavorful or it was not. If several consumers had the same experience there is a good chance they will write very similar reviews. On the other hand, there are at least ten major variables that impact quality ratings for financial advisors: Performance, risk management, expenses, reporting, and accessibility are just five of them. And, each consumer could have a different experience based on asset amounts, start dates, risk tolerances, types of services, and other considerations.

Challenge 3:  There are almost 700,000 financial advisors. Because financial advisors ratings is a relatively new service it will take years and millions of reviews before they help other consumers make the right decisions when they select and retain financial professionals.

Challenge 4:  This challenge is emerging. Financial advisor ratings and reviews will be published on several different websites. Investors will have to know which websites and they may have to visit more than one to find the review and rating they are looking for. A dominant force may eventually emerge, but that could be years from now.

Challenge 5:  A last challenge is the way consumers will review and rate the quality of financial advisors. They will be most inclined to submit reviews for advisors who sold them bad advice and bad products. Their motivation is bad results, excessive expenses, and other problems. This is their way of venting and warning other consumers about particular advisors. Consumers may also be inclined to post rave reviews about advisors who deliver exceptional returns for reasonable amounts of risk and expense. Unfortunately, most financial advisors fall somewhere between the good advisors and bad advisors so there may not be any reviews or ratings.

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