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August 14, 2014 at 10:55 PM
Paladin Research released Tuesday a rating of 21 online financial services companies using a scale of 1 to 5 to gauge how well each firm does at providing investors with information about their services.
In rating the online financial advisors (OFAs), Paladin developed the Paladin Transparency Index to measure the “completeness and accuracy” of information on the online advisors’ websites. Ratings ranged from 5 to 1; a score of 5 indicates firms that show “full transparency,” while a score of 3 was given to firms that “obscure certain information,” and a PTI Score of 1 was given to firms that “withhold important information.”
Paladin founder Jack Waymire told ThinkAdvisor that Paladin developed its rating of the online firms by comparing data obtained from their Terms of Service agreements and Form ADVs filed with the Securities and Exchange Commission, as well as reports the firms file with the Financial Industry Regulatory Authority, with the information that’s on their websites, which act as the firms’ marketing tools.
These firms’ websites “are a lot more important to these [online] advisors because they don’t have a sales force,” Waymire says. ”They are using their websites to sell their service,” but some firms are better at disclosing information on their websites that actually appears in their terms of service agreements and ADVs. “They all preach transparency, but they don’t necessarily practice transparency.”
Firms who scored a lower rating fail to disclose, for instance, how many clients they have, their assets under management or their fees. Waymire says that some firms with lower scores have asked him how they can raise their rating. His response: “If you want to raise the rating, get rid of [the number of] Did Not Disclose (DNDs)” mentions in the firm’s ranking.
While “robo-advisor” has become the most popular name used to identify online financial advice firms, Waymire argues that the term “robotic” is not a good description, as these firms’ “automated investment processes were programmed by humans” and most of these firms have added human contact by email, telephone, or Skype.
He argues that online advisory firms should provide on their websites “all” information consumers would need to select a top quality online advisor.
Read on to see how Paladin rated 21 online advising firms like WealthFront, Motif Investing, Folio Investing and Motley Fool, in order from lowest to highest:
— Motley Fool Wealth Management
Paladin Transparency Index (PTI): 2.5
Type of Financial Firm: Online Financial Advisor (OFA)
URL: www.fool.com
Year Established: 2013
Headquarters Location: Alexandria, VA
Types of Financial Services: Financial advice and services, financial planning and services
Paladin Transparency Index (PTI): 2.5
Type of Financial Firm: Online Financial Advisor (OFA)
Year Established: 2010
Headquarters Location: San Francisco, CA
Types of Financial Services: Investment advice and services
Paladin Transparency Index (PTI): 3.0
Type of Financial Firm: Online Financial Advisor (OFA)
Year Established: 2011
Headquarters Location: Salt Lake City, UT
Types of Financial Services: Planning services and advice, portfolio consulting
Paladin Transparency Index (PTI): 3.0
Type of Financial Firm: Online Financial Advisor (OFA)
URL: www.wisebanyan.com
Year Established: 2009
Headquarters Location: New York, NY
Types of Financial Services: Investment advice and services, planning advice and services
Paladin Transparency Index (PTI): 3.0
Type of Financial Firm: Online Financial Advisor (OFA)
URL: www.flexscore.com
Year Established: 2013
Headquarters Location: Modesto, CA
Types of Financial Services: Planning services and advice
— Covestor
Paladin Transparency Index (PTI) : 3.5
Type of Financial Firm: Online Financial Advisor (OFA)
URL: www.covestor.com
Year Established: 2006
Headquarters Location: Boston, MA and London, UK
Types of Financial Services: Investment advice and services
Paladin Transparency Index (PTI): 3.5
Type of Financial Firm: Online Financial Advisor (OFA)
Year Established: Over 25 years ago
Headquarters Location: Fairfax, VA
Types of Financial Services: Investment advice and services, planning advice and services
— SigFig
Paladin Transparency Index (PTI): 3.5
Type of Financial Firm: Online Financial Advisor (OFA)
URL: www.sigfig.com
Year Established: 2011
Headquarters Location: San Francisco, CA
Types of Financial Services: Investment advice and services
Paladin Transparency Index (PTI): 3.5
Type of Financial Firm: Online Financial Advisor (OFA)
Year Established: 1999
Headquarters Location: McLean, VA
Types of Financial Services: Investment services (Brokerage)
— Jemstep
Paladin Transparency Index (PTI): 3.5
Type of Financial Firm: Online Financial Advisor (OFA)
URL: www.jemstep.com
Year Established: 2008
Headquarters Location: Los Altos, CA
Types of Financial Services: Investment advice and service
Paladin Transparency Index (PTI):3.5
