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Integrity and Transparency

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Integrity and Transparency are popular terms in financial services today and have been for some time. Merriam-Webster defines Integrity as the quality of being honest and fair. Being transparent is to be honest, open, easy to understand, and not secretive. Financial Advisors are expected to have high standards of integrity while being transparent and they appreciate the same of alternative investment sponsors according to a recent survey conducted by Cogent Research on behalf of Franklin Square Capital Partners (FSCP).

The results, based on usable responses from 268 independent financial advisors and registered investment advisors, indicate that 92% felt that integrity and transparency matter most when selecting a sponsor. Investment performance was the 2nd most important criterion according to 91% of the respondents and low correlation (82%) rounds out the top 3. Competitive pricing and length of track record are also important according to 74% and 72% of the advisors. Interestingly, liquidity came in near the bottom of the list with only 38% of respondents indicating this to be a factor.

In a statement, Ron Carson, CEO of Carson Wealth Management Group, commented, “We, as advisors, should seek out firms whose money management approach produces solid results while truly embracing transparency and responsible business practices.”

Alternative Investment strategies are many so the survey was sure to determine which type these pollster are using. Alternative Mutual Funds are most widely used by the respondents (89%) while REITS and ETFS round out the top three. It is unclear if the use of REITs includes both non-traded and traded. Limited Partnerships (LPs) and BDCs are used by 42% and 39% of this group.

So out of 268 respondents, 104 use BDCs and 112 use LPs which is a small sampling, however, it is most likely on trend with the sentiment of the financial advisor mass.

Collectively, integrity and transparency imply a sense of fairness, honesty, ease of understanding, as well as being non secretive.

How do sponsors of direct investments achieve this? By offering investments that are easy to understand, managing them prudently, and sharing information, good and bad, in a timely manner. Sharing starts with a third party due diligence review and report provided to broker dealers (BD) for evaluation. During the BD assessment, answering additional questions and being an open book for due diligence committees. Then, on-going communication as it relates to the investment activities.

That covers things from a higher level, but what about the boots on the street, the wholesalers? Sponsors need to educate and train their wholesalers to answer financial advisors’ questions. Education and training are much like practice and preseason workouts are for professional athletes; they are constant and must happen in order to put your best “boots” forward.

Advisors agree.

The FSCP / Cogent Research survey indicated that advisors prefer to learn from wholesalers when it comes to alternative investment products. More than half of the 268 polled believe that wholesalers are best at educating advisors and keeping them informed of changes to current solutions.

Nice work sponsors.

Advisors, which sponsors have the most integrity and transparency? Share your thoughts and experiences with Dave at The DI Wire by emailing him at dave@thediwire.com.