SEC Wants Fewer Earnings Reports. Advisors Aren’t Sold

Could this be the end of the 10-Q?

In an attempt to encourage more companies to go public, the Securities and Exchange Commission this month proposed cutting back on how often companies are required to file earnings reports. Under the new plan, businesses would have to report only semiannually instead of quarterly. Most advisors aren’t making significant allocation changes every few months, but when data has become a more precious resource than oil, many wealth managers are asking why they would want less of it.

“For publicly traded companies, it’s great news,” said Lisa Kirchenbauer, founding partner at Omega Wealth Management. “For investors, not so much.” It may not be a problem when companies are in the black, but getting insights into struggling businesses every six months could become a problem, she added. “In a 24/7 world, that can feel like a disconnect.” 

Report Card

Since 1970, public companies have been required to report quarterly, but it’s something that President Donald Trump and the SEC see as overbearing. The new rule would give companies “increased regulatory flexibility,” SEC Chair Paul Atkins said in a statement.

While we love a good quarterly earnings report here at Advisor Upside, some wealth managers view them as a distraction. “They are data points, but they are also one of the noisiest inputs,” said Mark Stancato, founder of VIP Wealth Advisors. He added that most long-term allocation decisions are driven by fundamentals, valuation and forward expectations, not a single quarter’s results. And the new rule could help increase the number of public companies, which has been in decline for decades:

• The number of US-listed companies has dropped nearly 50% since the mid-1990s, according to CIBC Asset Management.
• Meanwhile, the median age of US IPOs has increased from 6 years in 1980 to more than 16 years today.

Crock Pot. As much as the wealth industry has outsourced investment management and shifted its focus to financial planning, some advisors are still active stock pickers and hold the portfolio in high regard. Without quarterly reports, gaps start to form. Monica Dwyer, senior VP at Harvest Financial Advisors, noted the collapse of Enron and the 2008 financial crisis as reasons there should be more publicly available information, not less. “Companies should report their financials quarterly; otherwise, how are individuals supposed to know whether they should buy, sell or hold?” she said. “This is a crock of bull.”