Third-party advisor review sites vie for attention from investors and advisors

For eight years Paladin Registry has been offering its own rating system of advisors but the company recently realized it was missing a key ingredient — the loyal investors who were visiting the site daily.

Now, the Lincoln, Calif.-based company will officially upgrade a sister-website www.investorswatchdog.com. Launching in January, it will contain more features including timely articles and ways to monitor advisors and track current investments in an effort to draw consumers to their website every day.

Paladin is just one company of many that has identified an attractive business opportunity: Helping clients and advisors find one another by operating a third-party websites. The concept has been tried by various companies over the years and it always makes abundant sense on paper.

Consumers want to find a good financial advisor. Financial advisors want consumers and their assets.

Wanted: Rave reviews

But the middleman role is fraught with difficulties and the biggest one is getting investors and advisors onboard. These rating and matching companies count on advisors for their revenue by charging a monthly membership for advisors to be listed. But advisors won’t keep shelling out the money unless they see the benefits from gaining new high-net-worth leads. Many seek the free services provided by custodians. See: How an RIA can capitalize on referral programs offered by Schwab, TD and Fidelity.

Another common problem faced by all of these sites is that everyone wants good ratings. Needless to say, good reviews mean little in a world with no bad ones. An even good reviews can pose problems because of the SEC’s strict advertising rules against See: How far can RIAs go with advertisements?.

BrightScope, Inc. received national attention and industry ire when it launched its Advisor Pages site last spring providing background on 450,000 advisors based on data from the Securities and Exchange Commission and FINRA. See: BrightScope sticks to its guns as it responds to outspoken critics of its Advisor Pages.

Another company, FinancialJoe with its site www.FinancialJoe.com, has been plugging along quietly since 2007 trying to attract investors to its site. This site is dependent on investor reviews, which some industry leaders say opens a huge can of worms.

“Yes the sites will proliferate and probably problems will arise. We are right at the bleeding edge,” says Elmer Rich III, principal of Rich and Co. in Chicago, which provides services and advice to financial firms. “The immediate problem we see is that again, the loudest hostile-aggressive voices take over everything.”

Star billing

For its part, Paladin Registry has tried to solve the problem of bad reviews by only posting advisors who get five-star ratings. Paladin only lists about 900 advisors who have received highest ratings based on its proprietary algorithm made up of 17 criteria that measure the quality of advisor credentials, ethics, business practices and services.

The company’s registry only profiles five-star rated advisors because investors informed the company that they do not want to talk to lower-rated advisors, founder Jack Waymire says. Plus, advisors with lower ratings don’t want to be listed, Waymire he adds.

Jack Waymire: The criteria mostly eliminates
wirehouse advisors.

The company also considers factors such as compliance, records, registrations, disclosure practices and fiduciary status.
Because of the rigorous requirements, Waymire notes that the criteria mostly eliminates wirehouse advisors and the bulk of the advisors listed are RIAs or some advisors who are affiliated with an IBD.

Creme de la creme

Advisors pay monthly dues of $50 to $275 a month based on their type of membership and geographic location to be listed in the directory. Waymire declines to list the company’s revenues. The company, near Sacramento, Calif., with 16 employees, decided to go with the scientific algorithm approach because it feels that consumer reviews would be too easy to manipulate.

“We’re practicing full transparency,” he says. “The bad guys don’t submit data to us because we’d screen them out and they wouldn’t make it past our first questions.”

Waymire says the company has been successful but the problem was investors would only go to the site to find an advisor and wouldn’t return again. He realized a sister-blog, investorwatchdog.com was generating a lot of consumer buzz and decided to expand on that site.

So, starting in January consumers will be able to get registry information from that site, a wide variety of articles and ways to track their own advisors in an ongoing manner.

“We’ve got to create a lot more value for investors,” Waymire says. “We couldn’t do it before because Paladin was a one-trick pony.”

Minefield for advisors

Figuring which one of these third-party websites to use has been difficult for advisor Scott Noyes, an RIA with Noyes Capital Management. Because he wants to grow his business, Noyes has been active in many of these websites including Paladin and BrightScope.

So far, he feels that Paladin has been one of his better investments. Since 2005, Noyes paid more than $2,000 annually in dues.

The costs are worth it for Noyes who has a $500,000 minimum for investors. He estimates he may get 18 leads a year, which could result in one or two new clients a year.

Scott Noyes: I’m creating a revenue
stream of $8,000 to $10,000 minimum
from an annual expense of $2,400.
That’s an easy trade.

“I’m creating a revenue stream of $8,000 to $10,000 minimum from an annual expense of $2,400. That’s an easy trade,” Noyes says.

BrightScope holds off on reviews

Of these third-party sites, BrightScope has gained some of the most attention in the past year. Brightscope to launch Yelp-like reviews, putting advisors under the consumer microscope

The company had intended to add a section to its Advisor Pages, letting consumers write reviews about advisors — a concept akin to popular consumer websites like Yelp or Tripadvisor.com. The La Jolla, Calif.-based company — well-known for its rating of 401(k) plans — had intended to launch these reviews by the end of this year, but has decided to wait until next year.

The company says is putting off consumer reviews because it wanted to launch a Q&A section on the site first, says co-founder Mike Alfred. When asked by RIABiz if the decision to hold off consumer reviews was prompted by regulatory hurdles, Alfred said that wasn’t the case at all.

Q&A time

The Q&A will allows investors to ask financial questions of advisors who will in turn offer up their expertise on the matter.

“This was a strategic business decision that had nothing to do with compliance,” Mike Alfred says in an e-mail.

Morningstar is taking a wait-and-see stance before launching an advisor rating service. See: Morningstar’s Mansueto views next horizon: rating RIAs.

Striving to get noticed

While it’s still not clear which company will get the most attention from consumers, those in the fray clearly agree that BrightScope gets a great deal of media focus on its products.

One of the sites vying for consumers’ attention is www.FinancialJoe.com founded by Shawn Tierney, 44, a former financial advisor who worked in wirehouses for nine years. Right now, the reviews from clients are based on a number of criteria such as communication, products and industry knowledge.

Tierney founded the company in 2004 — even before Facebook and Twitter had taken off. In 2007 he began beta testing the site.

Tierney acknowledges his company hasn’t gotten nearly the attention as competitors such as BrightScope but points out that consumers’ traffic will determine whether these sites of sites succeed or fail.

“BrightScope is big,” he says. “But how well known are they among investors? It seems they’re just big among the financial community. The FinancialJoe product is ahead of anyone in the arena and we intend to stay there by continually evolving.”

He notes that the site is generating 41.2% of its traffic from Google, 33% from referring sites and 26.1% from direct traffic. Tierney declines to list the number of unique page views his site receives.

Tierney’s company has little overhead and is debt-free but he won’t disclose revenue.

“We’ve had advisors who don’t like it and some who love it,” he says. “We’re not out there to attack advisors. We’re out there to connect investors with great advisors in the most efficient way possible.”

Pat Burns: It may feel like
you’re starting to steer people.

Compliance issues

It is true that industry compliance experts have raised their eyebrows about these third-party sites, saying they could cause compliance headaches for advisors. See: Why compliance experts are apt to dislike Facebook.

But the issues are all dependent on how the websites are structured, says Patrick J. Burns Jr., a compliance expert. For instance, if advisors aren’t allowed to erase reviews then there shouldn’t be problems.

The issue becomes murky if one of these sites happened to get dozens of glowing reviews about one advisor, prompting a regulator to wonder if the advisor generated or helped to generate those reviews, Burns says.

“I don’t think you can interfere with clients’ free speech rights,” he says. “The clients aren’t regulated. But the more reviews a person has it may feel like you’re starting to steer people there.”