Is the presentation of financial data just a matter of opinion?

Index providers compile, create the methodology for, sponsor, administer, and/or license market indexes. They typically determine the particular “market” (which may be a sector or other group of securities) that the index measures, the index constituents that measure that market, and the weightings that each constituent receives. Once the index is designed and its methodology is created, index providers determine the index’s level (or measurement) pursuant to that methodology.

These activities leave room for significant discretion—for example, an index provider typically has the ability to make changes to the index by adding or dropping

For example, at least one pricing service has registered as an investment adviser with the Commission because it has related person advisers; another has registered because of its ability to affect national markets (despite a lack of assets under management). See particular constituents (i.e., index reconstitution) or modifying their weighting within the index in some cases without publicly disclosing their index methodologies or rules.   SEC Request for comment  15/06/22

This drew a comment from Sarah Wilson, CEO of Minerva on Linked in (thread here)

So, the SEC is considering regulating #ESG data and #index providers as “investment advisers”. There’s no doubting that markets need to be confident in the integrity of data, systems and all the actors in the system. And arguably Minerva has a “conflict of interest” in this debate. But here goes – if anyone with an opinion or data that leads to an opinion becomes an “investment adviser” then what’s the point of actual investment advisors? Are newspapers also investment advisers? Or bloggers? Or what about a data aggregator that is processing data published in regulated disclosures? If an investor commissions data that they’ve determined is material to them, who is responsible for the investment decisions – assuming that the provenance and quality of data meets the clients expectations. The exercise of judgement in the investment process to construct a portfolio is a far cry from data analytics. Let’s see what transpires. In the meantime, let’s see if the SEC gets back to the #proxyplumbing any time soon, I am not holding my breath ……

There’s no doubt that indexes and ESG league tables use subjective decision making to get results. You could call this market manipulation or you could call this investment advice or you could simply accept that there is a lobby in financial markets “for good”.

If it were universally accepted that lower emissions, strong corporate governance and the the principles of social justice were “good”. there would be little debate. But some states in America, such as Texas do not see low emissions as good, the gun lobby argues that personal freedoms are more important than societal safety and corporate governance is frequently at odds with executive greed.

The manipulation of corporate voting , a practice Sarah refers to as “Proxy-plumbing” reminds me of the system of rotten boroughs that prevailed in England before the 1830s!

It’s often observed that America is two nations operating on quite different value systems. I am quite sure that for America , read the world. I am also sure that most people identify the financial markets as a particular nexus for self-serving carnality.

However, it is wrong to assume that because bad practice has been prevalent , good practice does not exist. Sarah Wilson makes the point well later in the thread

There’s an unwritten assumption in these types of consultations that controls don’t exist or that the staff are not serving clients to the best if their ability.

But as anyone who has been in the industry for as long as some of us will testify, ESG research and data comes with something of a vocation for the subject matter and yes, the accuracy and integrity of the work really matters. Sadly, the hostility and negativity from powerful vested interests lobbying against #ESG and #corpgov has been a real challenge in recent years.

Data matters; who controls it and in who’s interests it is controlled is a vital public interest issue. A market review is therefore not necessarily a bad thing, particularly if it blows away some of the myths that swirl around.

Of course these matters touch us in the UK, we use market indices and league tables to benchmark all kinds of things – including value for money in DC pensions. The composition of these indices, the means by which performance tables are created and presented and the expression of opinion in articles and blogs are generally unregulated activities. Is their space for a deliberate bias towards values such as “sustainability” “good governance”.

Should opinion be regulated? As Sarah says, the SEC is testing that and we should keep a keen eye out for the findings.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Is the presentation of financial data just a matter of opinion?

  1. Richard T says:

    My first thought was ‘I suppose it depends what you mean by investment adviser’. So I went to the consultation document to see what they said about that. This is it:

    “The Advisers Act generally defines an “investment adviser” as any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or any person who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities”

    I’m afraid I didn’t find that massively helpful. It seems to me that, in the UK (and the EU) our definition of advice gives greater clarity – though I recognise that others may disagree.

  2. Kevin S says:

    If indices were only benchmarks it might be different but they are used as the basis for ETFs and index funds. Including a particular investment in an index on which a fund is based directly leads to it being bought. Surely it would be surprising if regulators did not take an interest.

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