Website to rank financial advisers on investment results

An upstart financial networking website is looking to create a forum for financial advisers to showcase their investing prowess. Taking a page from what Facebook Inc. of Palo Alto, Calif., is doing for social networking and LinkedIn Corp. of Mountain View, Calif., is doing for professional networking, Cake Financial Corp. plans to launch Cake Pro, a platform to allow advisers to share their returns with investors. Cake Pro may appeal to investment-oriented advisers. “Our belief is to bring transparency to the investor space,” said Steven A. Carpenter, founder and chief executive of San Francisco-based Cake Financial. “We want to have a platform for advisers to put up their portfolios and history and, hopefully, attract future customers.” The site, which Mr. Carpenter hopes will aim to become the financial advice industry's equivalent of a Good Housekeeping seal of ap-proval, will make its debut within the next year, he said. Cake last month launched a similar website aimed at ordinary investors. By linking to their brokerage accounts, cakefinancial.com allows members to post their actual portfolios online and to track the real-life portfolios of fellow members for free. But the number of shares that a member owns and the aggregate value of their portfolio are not displayed. The portfolios are then ranked by their historical risk-adjusted annual return. The top 1% of Cake's members earn an “elite” rating. Investors in the top 2% to 10% earn a “platinum” rating, while those in the 11% to 25% range get a “gold” rating. Those ranking in the top 26% to 50% are “silver” members, and the remaining investors are ranked “bronze.” Cake's search tool allows in-vestors to scan through other members' portfolios to see what they own, how long they have owned it and their investment results.
“We are targeting Generation X and Generation Y investors who have a difficult time getting an aggregated view of their performance and risk,” Mr. Carpenter said. “This website provides investors with a way to get a context, to see how they are doing as an investor.” The site also maintains a running benchmark of its users' performance, dubbed the Cakedex, that may be compared with other major financial indexes. Analysts and advisers are both intrigued by and skeptical of what Cake is doing. Alois Pirker, senior analyst at Aite Group LLC, an independent research and consulting firm in Boston, said that the website is “more interactive” than similar sites, and “allows a user to find a community.” “This social networking tool allows Cake to cater to the adviser space because it allows them to build communities there,” Mr. Pirker said. “The non-adviser is more interested in the tools that the site offers, but making use of networking makes the website pretty powerful.” While the bells and whistles that the website offers may be appealing, one analyst feels that the content may be deceiving. “I think the website is well intentioned in concept but is full of misstatements, bogus statements and statements that investors beat the market if they tag along with smart people,” said Robert J. Ellis, New York-based senior analyst at Boston-based Celent LLC. He worries that fraudsters will use the site to orchestrate pump-and-dump schemes, and that it undermines the role of reputable advisers. “Cake's underlying assumptions are disparaging to financial professionals who do a good job within the risk and market boxes [for] which they are responsible,” he said. “This website makes financial advisers out to look like crooks trying to take advantage of the innocent public.” Mr. Carpenter insists that Cake isn't an investment advisory site and that its main purpose is to provide transparency on investing practices. “More transparency is better than [less],” he said. “It is hard to manipulate a system because of how long it takes to develop a track record and how long it takes someone to create a following among other investors.” Lori L. Embrey, a financial adviser at Summit Financial Strategies Inc. of Columbus, Ohio, which manages $500 million in assets, said that while searching the site, she found that the top-ranked member had a portfolio with a 186% average annual return. “While that individual has been quite successful in the short term, I wouldn't recommend that the average investor duplicate this portfolio,” she said. Duplicating the top performers may result in “chasing returns,” just as it does when you try to buy the “25 best” list in your favorite magazine, Ms. Embrey said.  Added Kirk Kinder, president of Picket Fence Financial LLC of Bel Air, Md., “The best result is to develop a diversified, boring portfolio and only make changes when a re-balance is necessary. Over the long term, these folks would beat the pants off the other Cake investors.” Aaron Siegel can be reached at asiegel@crain.com