Ask John “Jeff” Erdmann III about rank's having its privileges — or at least its marketing advantages.
Mr. Erdmann, who manages $3.2 billion in assets at Merrill Lynch Wealth Management, was the top-ranked financial adviser in Connecticut in two of the past three years, according to Barron's annual rankings.
“Being on the list has been incredibly positive,” said Mr. Erdmann, a private-wealth adviser with the Erdmann Group in Greenwich, Conn., who thinks that many investors search the Internet looking for top-ranked advisers. “It is a good form of due diligence and makes clients feel good about their decision.”
BUSINESS SUCCESS
Whether the rankings signify much more than an adviser's ability to bring in business — assets under management is a major criterion for inclusion — is an open question. Critics say that the ranking systems of Barron's and others measure business success rather than investment results or client service.
Still, investors flock to advisers who make the grade, according to those selected for the lists and the Barron's executives who run the program.
Barron's started its popular rankings in 2004, working with The Winner's Circle LLC, which developed a proprietary formula that incorporates criteria such as assets, revenue and quality of practice. Barron's acquired the company in 2008 and since has expanded its offering to four annual lists.
The flagship ranking of the top 100 advisers at brokerage firms, which will run April 16, is the most competitive. Advisers must have a minimum of $750 million in assets under management to apply.
The ranking of the top 100 female advisers, running June 4, sets a $200 million minimum, and the ranking of the top 100 independent advisers, which appears Aug. 27, has a $300 million minimum.
The newspaper's top 1,000 state rankings, scheduled to run Feb. 20, has minimums based on a state's aggregate wealth, said Barron's associate editor Matthew Barthel, who manages the rankings with a staff of two editorial researchers.
“If you are a top adviser in Wyoming and move to New York, for example, you wouldn't be anywhere near what you need to be to make the New York list,” he said, noting that just five advisers made Wyoming's list last year, managing assets from $115 million to $201 million, while 100 advisers made the list in New York, managing from $640 million to $25 billion.
For advisers hoping to make the list in any category, the first step is filling out Barron's 104-question online survey, which covers asset total, revenue, compliance and practice management issues.
Mr. Barthel said that the rankings aren't just lists of who manages the most money; the ranking algorithm is kept secret in order to avoid attempts to “game the system.”
His group carefully vets responses and has removed several advisers from the list in recent years for cheating, though he wouldn't disclose the names of those removed.
COMMON CRITICISM
A common criticism of the Barron's formula is that it doesn't incorporate investment performance.
But Mr. Barthel said that that would be impractical because “at the most elite levels of financial advisories, your numbers are a function of your client base.”
He recalls one adviser with a “hyperconservative” clientele who produced about a 4% return at the height of the stock market boom in the mid-2000s, well below market averages.
At the depths of the crash, however, when most portfolios were plummeting, the adviser produced returns in the 2% range, “which would have rocketed him up to the top 10,” Mr. Barthel said.
Randall S. Linde, a private-wealth adviser at Randall S. Linde & Associates in Renton, Wash., made the main top 100 list for the first time last year, after making his state's list in 2010.
He doesn't ask new clients if they came to him because of the ranking, but at least two or three have brought it up themselves, he said.
“A lot of ordinary people are looking for good, high-quality financial advice,” and the rankings “help establish trust,” Mr. Linde said.
In addition to the marketing value of having one's name appear in a favorable setting in Barron's, the top advisers also can take part in invitation-only events put on by the publication and sponsored by product companies and service providers.
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