Brooke’s Note: This is not exactly a Wikileaks situation where private and confidential documents got released over the Web. BrightScope is releasing already-public information. But BrightScope’s principals are getting a taste of what it’s like to be the scorned Julian Assange, founder of the Wikileaks website. And advisors are learning what it’s like to have a bunch of laundry aired under circumstances where they have limited control. Light is generally considered the great disinfectant. But there are other considerations raised here by critics about BrightScope that go to fair play and whether even 'accurate’ information can mislead. It’s early days. It will be very interesting to see how it all settles out.
BrightScope executives say they will stay the course in their plan to make data about 450,000 financial advisors accessible, even though the company’s publication of the data and plans to profit from it are angering some advisors and industry observers.
The La Jolla, Calif.-based company that launched in 2009 to track 401(k) plans the way that Chicago-based Morningstar tracks mutual funds is being criticized by some advisors for its new effort — BrightScope Advisor Pages.
Advisor Pages is a pioneering effort in the sense that it is giving easy, free web access to reams of information about an advisors’ practices and disciplinary history. See: BrightScope’s huge advisor database is first search-engine friendly way to connect consumers, advisors.
It is an alternative for consumers to the clunky, dense SEC and FINRA websites. BrightScope gets its data from those sites. People can only search government databases by providing an individual or company name, so they cannot use them to learn more about an unknown individual or firm.
This new effort — by its nature — can’t please everyone because it casts an unfavorable light on some people and their businesses, according to BrightScope co-founder, Ryan Alfred.
“If you do something disruptive (in the marketplace), it’s going to be polarizing,” he says.
But the issue may go beyond polarizing, according to Ken Kaltman, chief operating officer of National Compliance Services, Inc..
“We’re not one to quash enterprise but this is problematic to say the least,” he says.
The problem, Kaltman and others say, is that the information can also end up being either misleading or inaccurate and it can’t be readily corrected or deleted.
Alfred says it can be corrected by fixing the government filings.
But Kaltman says this response is only reasonable if BrightScope plans to do daily downloads from FINRA and the SEC. “The problem is the interim” between when the correction is made and when it shows up on BrightScope Advisor Pages, he added. Alfred declined to say how frequently his company would complete these downloads.
Right now, the only way to correct data directly is to subscribe, which costs firms $250 and individuals advisors $100 for an annual subscription. “I don’t like the pay-to-play and no opt-out,” Kaltman says.
Subscribing advisors can’t change asset information or information about disciplinary actions unless its wrong. Nobody can simply remove themselves from the list.
Alfred contends that there is no harm in publishing public data in a new format that makes it more accessible. What’s happening now, he says, is that there is a certain shock factor because it’s something new. He says his company is addressing each advisor concern and he believes that the net effect of shining a big light on the data will be a big boost for the best advisors.
Tough to stomach
“It’s about: We’re out there to help you grow your business. The initial reaction to the transparency can be tough to stomach. ... It’s hard to see out of the gate, but we hope the best advisors get a lot of new business from this.”
The primary complaint of advisors thus far is that the AUM shown by Advisor Pages does not match up with what’s true for their practices, in part because of the complex regulatory structure advisors work under. InvestmentNews covered this aspect in Jessica Toonkel’s article: Advisors take dim view of BrightScope’s controversial website.
The data shown may not actually indicate the size and quality of the advisory service, according to Julie Cooling, founder and president of RIA Database, a Charlotte, N.C.-based company that sells SEC-derived data (primarily) to mutual funds.
For some of the data she provides on RIAs, See: Six things to know about how and where RIAs are growing.
“It’s like me saying that GE is making zero because it pays zero in taxes,” she says.
There are three ways that a published AUM can end up being substantially different from the amount that is representative of the size of the practice, Cooling says.
First, advisors may be outsourcing management of assets to a turnkey asset management provider like Brinker or Envestnet Asset Management and those assets may not be counted as AUM on an ADV.
Other advisors may be exempt from disclosing AUM in their state because they are so small.
Finally, many advisors affiliated with independent broker-dealers keep their assets with the corporate RIA; those assets don’t get counted on the individual advisors’ regulatory filings.
Alfred says that he is fielding the concerns of advisors and that many times the issues are the fault of the advisors in how they filed.
Areas of improvement
“There are some things that advisors are wrong about and some (cases) where we can improve our disclosure.”
What gives Alfred confidence that advisors will grow to accept his company’s disclosures is that his company went through the same tensions with many plan sponsors in the wake of its launch of 401(k)-related information in 2009.
“The first couple months was very tough,” he says. “We had a lot of angry calls and now we basically get none. It’s about completely gone away.”
In many cases, it was a process of educating the plan sponsor about how they misfiled information.
Hours and hours
This time around BrightScope took steps to lessen that initial clash by getting 80 advisory firms in test mode to test the process in advance and root out potential problems with the presentation of the data. “They spent hours and hours and hours with us.”
Despite these pre-emptive efforts, Brightscope expects to get plenty of flak from advisors.
“With advisors, it’s going to be even more. With plan sponsors, it’s not personal. With advisors, it’s your picture on it.”
Under the circumstances, BrightScope is actually receiving fewer complaints than expected, he adds.