Every advisory firm has a business model. Every business model has the potential for conflicts of interest to arise between you, the consumer, and that specific model. Our methodology evaluates the structure of these business models, not the quality of advice, not investment performance, and not whether fees are fair.
Every grade is derived from structured SEC filings, not marketing claims, not self-reported surveys, and not editorial opinion.
More business complexity means more potential conflicts. We measure how many layers exist. The grade is a direct result of this dynamic.
The grade tells you where to look and what to ask. It does not tell you to avoid any firm. A firm with a "low" grade might be your best choice, exactly because what they can offer is what you need.
Every registered investment adviser in the United States, whether registered with the Securities and Exchange Commission (SEC) or with a state securities regulator, is required to file a Form ADV, which consists of many parts. Part 1A of this form contains structured, machine-readable data: including yes/no questions about how the firm operates, how it is compensated, what affiliations it maintains, and where potential conflicts may arise.
These are not self-reported marketing claims. They are regulatory filings, updated at least annually. Every firm answers the same questions in the same format. This standardization of responses is what makes objective, firm-to-firm business model comparison possible.
The AdviserReport™ transparency grade™ is derived entirely form these structured regulatory fields, not from narrative brochures, not from marketing materials, and not from editorial opinion.
The grades presented are mathematical outputs of structured firm responses. If a firm's business structure changes and they update their regulatory disclosures, those changes will be reflected in a new score based on the same mathematical outputs.
The transparency grade™ is designed to help you prepare. It is not designed to make the decision for you. To that end, there are clear boundaries on what AdviserReport™ does and does not provide.
The AdviserReport™ tells you where to look and what to ask. The decision is yours.
Every advisory firm must answer yes or no questions about how its specific business model interacts with the public. These responses reveal the shape of the firm's potential conflicts and how many layers exist.
A firm with a simple business model (one compensation method, no affiliated entities, no dual registrations) has fewer places where conflicts can arise. A firm with multiple compensation methods, affiliated broker-dealers, proprietary products, and revenue sharing arrangements has more layers. Each additional layer does not mean the firm is a bad actor or worse than other firms. It means there is one more area where your interests and the firm's interests could diverge, and one more thing you should understand before engaging.
The transparency grade™ measures how many layers of potential conflict exist in a firm's business model and how complex those conflicts are for a consumer to evaluate. Fewer layers and simpler structures receive higher grades. More layers and more complex structures receive lower grades, not because they are wrong.
These potential conflicts fall under a few broad categories. Within each, we evaluate specific regulatory fields that indicate whether a particular type of conflict may be present.
How a firm is compensated determines its fundamental incentive structure. A firm paid solely as a percentage of assets under management has one set of incentives. A firm that can also earn commissions, performance-based fees, or fixed fees has additional sets, and the consumer should understand each one.
Some advisory firms are also registered as broker-dealers, or are affiliated with one. This means the same firm, or a closely related entity, can operate under two different regulatory standards depending on the type of account and the capacity in which your adviser is acting.
Advisory firms may receive payments or benefits from custodians, fund companies, or other service providers. These arrangements are disclosed in regulatory filings but are rarely described in dollar amounts, making them difficult for consumers to quantify.
We debated the grading scale extensively. Letter grades carry baggage: in school, a D meant you barely passed, and an A meant you were the best. That implied severity is real, and we took it seriously, because the transparency grade™ is not a judgment of quality.
We considered numbered scores, star ratings, color-coded tiers, and descriptive labels. Each had the same problem: any ordinal scale implies that one end is better than the other. There is no rating system that avoids this entirely.
We chose letter grades because they are easily identified. That recognition is more valuable than the false precision of a 1–100 score or the false neutrality of an abstract label. But we ask you to adjust one assumption: in this system, a D is not a bad or failing grade. A "lower" grade merely indicates a more complex business model, on a relative basis, with more layers for you to understand, not a firm you should avoid.
Each firm's responses across all evaluated categories are scored and combined into an overall transparency grade™ on a scale from A to D, with minus modifiers. The grade reflects the total number and complexity of potential conflict layers present in the firm's business model.
The grade tells you how much due diligence a firm's business model warrants, not whether the firm is worth hiring.
Firms that operate exclusively as broker-dealers, without a registered investment advisory practice, receive a "BD" designation rather than an A through D transparency grade™. These firms operate under a fundamentally different regulatory framework, their representatives adhere to Regulation Best Interest, and their compensation structures, obligations, and conflicts are sufficiently different that they cannot be scored on the same scale as investment advisers. They do not complete the same SEC required disclosure that Investment Advisers do. Under the Investment Advisers Act, broker-dealers are excluded from the definition of an "investment adviser" if their investment advice is "solely incidental" to their brokerage services and they receive no special compensation for that advice.
AdviserReport™ is an educational resource to help consumers understand the differences between the advisory and brokerage models, including what Regulation Best Interest requires and how broker-dealer compensation typically works.
The summary on this page describes the categories of conflict-of-interest signals the scoring engine considers, the high-level structure of the scoring approach, and the public regulatory data sources from which inputs are drawn. The full specification (including specific scoring weights, configuration values, and engine internals) is treated as Transparent's confidential business information.
Transparent will provide the full specification on written request to support@adviserreport.com with the subject line "Methodology Request," subject to execution of a non-disclosure agreement on Transparent's standard form.
The scoring engine version applied to any given report is identified within the report. Methodology may be updated from time to time at Transparent's editorial discretion.