SPECIAL REPORT: Curse of the Barron’s List—Why Advisors and Clients Should Worry
Barron’s magazine says its editors check the regulatory record of each nominee for its annual Top Advisor rankings and weigh dozens of “qualitative” criteria to ensure it is not steering retail investors toward bad apples, according to the weekly magazine’s editors.
They might do better to check country-club membership lists.
Tom Buck, who touted his Barron’s credentials as Indiana’s top advisor in 2012, 2013 and 2014 —and who also cracked the weekly magazine’s hallmark roster of “Top 100 Financial Advisors” in 2012—was booted from Indiana’s exclusive Crooked Stick Country Club for cheating in two different golf tournaments, according to a source with direct knowledge of the event. The incidents coincided with the years of his Barron’s awards.
Buck, who worked for most of his 34-year brokerage career at Merrill Lynch, was permanently barred from the industry last July on fraud charges. He misled and corralled clients into commission accounts, when fee accounts were more appropriate, en route to leading his team to $6 million to $10 million of annual revenue from 2009 through early 2015, according to a consent order he signed with the Financial Industry Regulatory Authority, without admitting or denying the findings.
Buck, who co-chaired a committee that successfully promoted Crooked Stick as host to the PGA’s BMW Championship in 2012 and who has donated $25,000 to the Indiana Golf Foundation for naming rights to its library, did not return a call for comment.
Regulators and many advisors caution that investors who ignore character and disciplinary histories do so at their peril. But given the data and the disgraces that have befallen some Barron’s top advisors of late, relying on lists as a guide could compound the difficulty.
An average of 60% of advisors on Barron’s hallmark list of Top 100 FAs over the past five years have at least one customer complaint, regulatory action or criminal conviction disclosed on their BrokerCheck records, according to an AdvisorHub review. In comparison, 7.8% of all brokers who registered with the Financial Industry Regulatory Authority between 2005 and 2015 reported a misconduct disclosure at some point in their career, according to a recent study by academics at the University of Chicago and the University of Minnesota.
A customer complaint, to be sure, is not proof of wrongdoing. But since advisors and their firms regularly market the ranking as “badges of honor,” in the words of Barron‘s editor, the public has to carefully consider the criteria used in the publication’s rankings and the credentials behind them.
The 12-year-old Top 100 list is one of four that Barron’s, which is owned by News Corp, compiles annually to help retail investors find “the truly great financial advisors.” It also publishes the Top 100 Women Advisors, Top 100 Independent Advisors and the 1200 Top Advisors by State — along with a ten-times-a-year “special advertising section” with phone numbers, email addresses and website addresses of ranked advisors who pay $5,000 for the privilege.
Then there are at least six annual “summits” the magazine holds at resorts and large hotels that are sponsored by dozens of brokerage firms and product providers. They pay to meet brokers and advisors who themselves must meet “high standards of admission” and pay to attend. Firms often pay the bill as a perk for their top producers.
In testimony before the Securities and Exchange Commission in January, a Fairfield, Conn. investor named Eric Zlatin said he invested about $500,000 with independent broker Dawn Bennett in Washington, DC after seeing her “so prominently featured (with) a large photograph” in Barron’s 2009 listing of Top 100 Women FAs.
The SEC is prosecuting Bennett, who had registered as an advisor with the agency one year earlier, for “grossly inflating” her group’s $400 million of 2009 assets to $1.1 billion to attain the Number 4 spot in the Top Women’s ranking and the Number 26 spot among the Top 100 Independent FAs.
Bennett regularly attached Barron’s articles as email attachments to prospects and clients, the SEC said in a document before an administrative law judge, and she ordered over 1,000 copies for marketing purposes. When she fretted to her public relations consultant about her Number 26 ranking in her rookie year, he reassured her: “I had a client no. 23 last year [who] got calls from people looking to invest millions. Anywhere on the list is good,” he wrote, according to the document.
Barron’s officials say they go through rounds of soul-searching and revise their methodologies when a listed advisor has been sanctioned. A complex set of data points are used, particularly in evaluating “soft” measurements such as “quality” of client practice and philanthropic work.
“We’ve changed the rankings formula several times over the years,” Matt Barthel, associate editor in charge of managing the rankings, wrote in an e-mail.
Based on some high-profile flameouts of top-list advisors over the past two years, the editors must be hard at work once again. Besides Buck and Bennett, here are some other examples:
Bellevue, Wash.-based broker Phil Scott, who touts himself as head of Merrill Lynch’s top team in 2015, ranked 43 in Barron’s 2016 Top 100 FA listing published on April 16. He was Number 8 in 2006. Over the past six years Merrill Lynch has paid $5.1 million in damages in customer disputes tied to Scott, according to his BrokerCheck report. Scott, who also uses the name Walter Schlaepfer, denied wrongdoing in those cases but is still facing a complaint alleging unsuitable recommendations and misrepresentation from a former client seeking $825,000, according to BrokerCheck. He did not respond to a request for comment.
John Rafal, who ranked in the top quarter of Barron’s Top 100 FAs from 2008 to 2015, was suspended and fined late in 2015 by the Connecticut Department of Banking for dishonest or unethical practices in the securities business. Rafal, the founder of Essex Financial Services and its former president, paid annual fees to a lawyer who steered a major account to Essex but concealed them because the lawyer was not a qualified advisor, the state said.
Ami Forte, who along with Morgan Stanley lost a $34 million arbitration case last month for unauthorized trading in the accounts of a Home Shopping Network co-founder, ranked No. 25 on the Barron’s Top 100 list in 2012 and was Barron’s Top Woman Advisor in 2010, 2011 and 2012.
Morgan Stanley, which last month fired Forte, continues to encourage advisors to shoot for Barron’s honors. “By putting our clients first our Financial Advisors are leading the way,” the company writes on one of its wealth management websites. “Your level of excellence makes us proud.” In regulatory filings, Forte listed her role in 2008 as a member of Barron’s top broker steering committee as an “other business activity,” implying she was paid for her participation.
Barron’s officials insist in public pronouncements that the lists serve a valuable service in helping the readers efficiently find what Barron’s editor and president Edwin A. Finn, Jr. has called “the truly great financial advisors.”
Speaking to an industry audience at the Investment Management Consultant Association’s annual meeting last week, Sterling Shea, head of advisor programs at Barron’s, said the lists represent “the state of the art in outstanding wealth management.” By isolating “the attributes that best define excellence in wealth advisors,” he asserted, Barron’s finds for its readers “the very best FAs that we know in the country.”
Regulators and consumer groups urge caution in seeking such quick solutions as Top Lists in searching for reliable financial advice. Barron’s leads its lists with the assets under management that advisors and their firms report, a “size-matters” criterion that does not necessarily convey quality.
“Investors should be asking different questions about their advisors, vis a vis their own goals,” said FINRA senior vice president of investor education Gerri Walsh, who declined to discuss the rankings of Barron’s or other third parties directly. “When it comes to deciding what weight to give a credential, or what weight to give an appearance on one of these lists, investors should consider the criteria, and how the advisors are chosen.”
If those answers can be found, she added, the next question should be, “Does it matter?”
Mason Braswell contributed reporting to this story.