SAN FRANCISCO — The days when registered investment advisers could remain as cloistered and mysterious to outsiders as a John Grisham-style law firm may be drawing to a close.
A handful of aggressive database companies are supplying an array of detailed data on RIAs, and financial product manufacturers and technology companies are lapping the information up.
Not only do these database firms divulge basic information such as assets under management, at least one of them lets clients know in some detail what products these companies are buying.
“We can see how much is in a particular [exchange traded fund] for a particular adviser,” said Nick Stuller, president of The Financial Information Group Inc. of Shrewsbury, N.J., a data collection company. Financial Information Group’s Discovery database has 2,200 users, and it charges customers $15,000 to subscribe, plus an additional $900 a seat.
The customer list on the company’s website includes such big industry names as American Funds, which is run by Los Angeles-based Capital Research and Management Co.;
The Vanguard Group Inc. of Malvern, Pa.; and The
Charles Schwab Corp. of San Francisco.
Discovery’s success has attracted competitors such as RIA Database of Charlotte, N.C., whose corporate name is Labworks LLC.
Despite launching only last summer, RIA Database already is profitable because it has established a niche by charging a subscription fee of just $5,000 and taking steps to keep overhead low, according to Julie Cooling, the company’s owner.
All RIA Database’s technology — both in its development and operations — is outsourced to India, and even the company’s two salespeople are contract workers.
“Labor costs are just too high in the U.S,” Ms. Cooling said.
RIA Database’s lower price is winning converts such as Clay Smudsky, managing director of Forward Funds Inc. of San Francisco. “We wanted to go to [Discovery], but it was a little too much money,” he said.
RIA Database is sufficient for his purposes, and its sorting capabilities are better for a fund wholesaler in any case, because it sorts simply by location, size of assets and type of practice, Mr. Smudsky added.
Meanwhile, Discovery’s renewal rate increased to 95% last year, up from 90% a year earlier, despite new competition, Mr. Stuller said.
Yet another competitor is Standard & Poor’s of New York, which sells both an electronic directory of RIA firms for $595 or web access to its RIA database for $9,500.
S&P offers a high level of integrity in its data, according to Thom Lupo, vice president of directory services at S&P because, for instance, the company sends four questionnaires and places two phone calls annually to top advisers.
The value of the data for customers isn’t a mystery, according to the data providers. Assets under management from the 8,818 RIAs that invest primarily through mutual funds is about $3 trillion, according to Mr. Stuller.
But it isn’t just sheer buying power for financial products that makes these RIAs compelling targets, Ms. Cooling said.
“RIAs are open to niche products — wide open,” she said.
Yet the jury’s still out as to whether the expensive data services are better than what is available for free from the Securities and Exchange Commission’s Investment Adviser Registration Depository, said David Tittsworth, executive director of the Investment Adviser Association in Washington.
“I’m a little skeptical that that much [detailed] information about that many firms is available,” he said.
However, Discovery mines enormous data through “hundreds” of different sources, Mr. Stuller said.
Aside from scraping as much data as possible from the public domain, Financial Information Group buys data, does vendor exchanges of data and engages in data collection that it keeps confidential for trade purposes. The company also surveys RIAs directly on a continuing basis to fill in blanks.
All this data collection is labor intensive, which is why the company has 35 employees.
Meanwhile, Mr. Tittsworth questioned whether this data collection is positive for RIAs.
“I think a lot of firms keep their information close to the vest and don’t want people to know,” he said.
But RIAs actually should welcome the dissemination of their data, according to the data company executives, because it improves efficiency. A mutual fund wholesaler, for instance, doesn’t want to call on a company that exclusively buys ETFs, so many unnecessary cold calls are avoided, Mr. Stuller said.
