Word first began to leak out that Dalbar, the Boston-based financial services research and consulting firm was exploring ways to judge the performance of 401k investment advisors. It turns out that was just part of the story.

Dalbar's project actually is more ambitious. The firm is developing standards in conjunction with PCT Publishing (publisher of Senior Consultant magazine) by which investment advisors can be rated, said Steve Winks, editor at Senior Consultant. The project includes the creation of an objective standard by which to judge individual practitioners and the creation of a who's who of investment consulting, he said.

Winks added that Dalbar and PCT are still in the process of putting the project together and that the company expects to announce details of the standards sometime around May or June. At that time it is expected that several 100 financial consultants will get a Dalbar rating. Ultimately, Dalbar hopes that thousands of consultants will receive a Dalbar rating.

Dalbar expects the ratings to be used both as a marketing tool and as a diagnostic tool for consultants to examine their own operations. Dalbar is soliciting input into the process from consulting firms and is creating a 12 person standards group to provide additional input.

The standards will likely look at eight distinct areas covered by investment consultants. The first that Dalbar will look at will be the 401k area. Other areas will include the defined benefit, the high net worth market, and the foundation and endowment market.

The fast growing niche of Internet-based financial advisors typified by firms such as Financial Engines and 401k Forum will likely be covered by the project.

Dalbar chose this topic partly in response to demand from plan sponsors and partly in response to demand from the investment advisors themselves. "It was 60% from consultants and 40% from sponsors", Winks told the 401kWire.com.

"People making a living on giving the advice have been frustrated that there is not a standard on which to differentiate their service," he said.

Still, the standards will be client driven. Plan sponsors are being included in the process of creating the standards so that they meet the sponsors needs.

The standards are being "created by leading plan sponsors in concert with consultants contributing in the technical aspects," Winks explained. The goal, he said, is to "move the market in a way that can benefit plan sponsors." He further explained that this will be a high standard for consultants.

The Dalbar rating will be based on quantifiable and measurable standards and will be based on input from plan sponsors and participants.

The ratings may eventually be distributed through a Web site set up by Dalbar. The company also plans to create educational courses for consultants to teach the standards. In addition, Dalbar has a no-action letter from SEC allowing consultants to use their Dalbar measurements in ads.  

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE