Advisers may benefit from XBRL shift

If advisers haven't heard of extensible business reporting language, or XBRL, they soon will. The data standard, which came into existence almost a decade ago, is now part of a pilot project for reporting financial and business information to the Securities and Exchange Commission. The SEC, in fact, is encouraging companies and mutual funds to file their financial reports to the agency in XBRL. Because XBRL is far more efficient than ASCI text or even HTML when dealing with large volumes of data, its widespread use — and the vast amounts of data that will become more easily accessible and usable — will serve as a boon to advisers, observers believe. "XBRL will help level the playing field for start-up software and data provider companies" by making it easier to aggregate, collect and leverage data, said Darren Duffy, global head of production at New York-based Lipper Inc. Lipper, for instance, collects and reports information on more than 92,000 funds in 52 countries. Companies making use of the language can shift more capital to building products to serve advisers rather than continuing to expend those resources on more manual processes involved in collecting, converting and reconciling data from less sophisticated formats, Mr. Duffy said. Liz Kirscher, president of data services business at Chicago-based Morningstar Inc., agrees that widespread adoption of XBRL would benefit her company and the industry at large. "If I could get all the data in that format, I'd be thrilled," Ms. Kirscher said. "While we don't re-key things anymore, we do cut and paste it and that certainly is labor intensive." Morningstar, in fact, had its own program in place to prepare for receiving more data in XBRL format. "The cost for us is a person and some time, since we are already in an XML state of mind," she said, referring to her company's already extensive in-house expertise with and use of the more basic and widespread extensible markup language. Those in favor of adopting XBRL over current formats stress its potential for reduced costs for compliance and data reconciliation, as well as improved data-search efficiencies. "Think of XBRL as XML on steroids," said Mike Willis, a partner with PricewaterhouseCoopers LLP of New York and founding chairman of XBRL International, a non-profit industry consortium. Here's a quick roadmap: Hypertext markup language, or HTML, is the language used to build most static Web pages. It can define the order, font, color and other aspects of how text or other elements are displayed on a Web page. XML is a language used to define specific pieces of data. XBRL tags are used for even finer precision, defining specific pieces of business data. "It's not the standardization of the data, but the access it grants you," said Mr. Willis, explaining XBRL's advantage. "You can standardize formulas; you can search for almost anything. Worksheets and reports that are opaque and not very manageable as flat text or HTML can be easily searched when in XBRL format," he said. David vun Kannon, a director with the financial services advisory practice of PricewaterhouseCoopers, said that once XBRL is more widely used, analysts and advisers could expect access to more granular sets of data. "For instance, if an investor wants you to find what best fits their social investing profile, XBRL will act as an enabler to let you do a more targeted job of seeking out matching investments," Mr. vun Kannon said. He predicted that widespread usage of XBRL will take a few years. "You aren't necessarily going to see some banner in the sky that says [Form] 10-Ks will all be filed in XBRL by such and such a time," Mr. vun Kannon said. But the change is coming, said Rob Blake, the Denver-based senior director of interactive services for Bowne & Co. Inc. of New York, a provider of shareholder, financial and marketing communication services. "You can liken XBRL reporting to high-definition television," said Mr. Blake, who has been involved in the development of XBRL since its inception. "People watching standard-definition television see nothing wrong with their picture until they watch HD." He added that XBRL will provide access to information that's locked up today because XBRL can handle and represent both numeric data and text. "It truly represents a democratization of data. Yes, it's new for a lot of users, and, yes, it's mostly just the financials and risk return information now, but we're really just at the start and the financial services industry is just ripe for it," Mr. Blake said. Morningstar's Liz Kirscher said she found it all interesting from a philosophical bent as well. "The challenge that is really out there from a fund company's or filer's perspective is the challenge of taking something that's a narrative — big passages of text in a prospectus or a financial filing — and turning it into data. Will the structure of creating these documents change? That's where I think things start to get interesting," she said. Last month, the SEC made an XBRL taxonomy available to the public. It provides a comprehensive glossary of labels, known as tags, for translating financial reporting verbiage into something that's computer-readable. A free XBRL taxonomy review tool is publicly available on the Internet at http://usgaap.xbrl.us along with other information, including a list of nine software companies whose products are compatible with the new draft taxonomy. The SEC's public comment period on its voluntary program to encourage XBRL usage ends on April 4. Davis D. Janowski can be reached at djanowski@crain.com.