Even though advisors might recommend clients invest in funds rather than individual stocks, having less frequent data in terms of semiannual earnings reports might make a difference at scale.
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The U.S. Securities and Exchange Commission
“This could reduce potential managerial incentives to overly focus on short-term outcomes to the detriment of long-term performance,” according to the economic analysis section of the proposal. However, “other factors may play a larger role in short-termism concerns than the periodic disclosure cycle, such as executive compensation design or messaging to investors through, for example, earnings guidance.”
Companies could, theoretically, decide to vary their reporting cadences year to year.
“If you have enough of those individual stocks that make people nervous, then you know it probably has some impact. Now, it would have to be an awful lot of them,” Jeremy Garvey, who advises businesses and entrepreneurs and is co-chair of the corporate practice group at law firm Cozen O’Connor, said in an interview.
A company could delay talking about bad news by switching to semiannual reporting, said Barry Fischer, a Chicago-based partner who advises public and private companies and individuals at law firm Thompson Coburn.
Eventually, other market participants might interpret companies selecting semiannual reporting as a sign of trouble, he added.
“When people file and make that election, stock’s going to tank. If that’s the case, people won’t make the election,” he said.
“If some companies in a sector go to quarterly reporting, and some go semi-annually,” Fischer said, “that apples-and-apples [comparison] becomes more of an apples-and-oranges comparison.”
Even if a financial advisor isn’t relying on stale information, the overall market is, said Adrienne Gurley, a partner at law firm Sanders Roberts who formerly worked at the SEC. That said, companies will continue to have to report “material” events on a Form 8-K even if they are reporting semiannually, she added.
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What advisors think about stock selection, reporting cadence
Although Mitchell Kraus, who co-founded the Santa Monica, California-based registered investment advisor Capital Intelligence Associates with his father, said his firm hires others to make investment decisions, he still expressed interest in the impacts of the proposal.
“I love data, so I’m curious what the lack of data is going to do,” Kraus said in an interview. “We’ll know in a few years whether companies are acting any different.”
Charles “Chuck” Failla, principal and founder of Sovereign Financial Group in Stamford, Connecticut, does long-term investing and prefers diversified, low-cost ETFs
“We are not an individual stock selection shop,” he said. “I personally don’t believe in individual stock selection.”
For that reason, he said he doesn’t “have a strong opinion on” whether public companies’ reporting should be quarterly or semiannual.
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Other advisors might run their planning businesses differently.
“For those advisors who live and die by this, I think they may be dismayed, and they may say … ‘I subject my clients with this torture of giving them an update on their portfolio every quarter based on these amazing stock-picking skills. Well, if I don’t have anything to report every quarter, then maybe my value proposition goes down,'” Kashif Ahmed, founder and president of Bedford, Massachusetts-based American Private Wealth, said in an interview.
The companies themselves that clients are investing in, however, might be better off if they don’t have to report quarterly earnings.
“I don’t think it’s in the best interest of companies to be subjected to opening up and letting everybody see what’s going on quarter to quarter,” Ahmed said.
