Will BrightScope Clean Up The Financial Services Industry?

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

The inspiration for today's blog post is a recent discussion I had with another planner, who shared in frustration a difficult situation he worked through with a client a few years ago, who had been taken advantage of by a "bad advisor". In fact, the advisor had actually been sanctioned more than once by his state insurance regulators and FINRA (then NASD) for inappropriate product sales and other misdeeds, but the client had been unaware. In fact, the client had even done a basic Google search of the advisor, but nothing pertinent to the prior indiscretions had turned up. Apparently, the only way the problems would have been discovered at all would have been if the client had manually searched the NASD's clunky BrokerCheck system, or contacted all 50 state insurance departments to discover the two in which the advisor had received prior complaints.

Fortunately, though, this dynamic is changing, thanks to a company called BrightScope, that is seeking to become the one-stop-shop for checking up on any and all advisors, by drawing on data from almost every insurance and investment regulator imaginable, collecting all the information into one central system, and making the results searchable not just from the BrightScope website itself, but even findable through standard search engines if the consumer simply runs a query on the individual advisors' names (or firm names).

Who Is BrightScope?

Initially, BrightScope was a company that drew on publicly available information regarding 401(k) retirement plans (predominantly through Form 5500 filings), in an attempt to assess the quality of any particular retirement plan in the country, measured on the basis of everything from plan costs and the investment menu to the company's generosity in contributions and the participation of employees. And in fact, BrightScope still maintains a ratings directory for 401(k) plans.

However, in 2011 BrightScope launched their Advisor Pages - creating what is becoming a publicly available directory of every "financial advisor" in the country. Drawing upon public regulator data from FINRA's BrokerCheck, the SEC's IAPD system, state investment advisor overseers, and soon state insurance departments as well, BrightScope has created a standalone page for more than 770,000 advisors in the regulator databases (along with every firm). For instance, you can see my BrightScope page, as well as the page for my firm Pinnacle Advisory Group. If you search for yourself in their Financial Advisor directory, you're likely to find your own page there, too.

Protecting Consumers By Making Regulatory Information More Findable (Than BrokerCheck)

BrightScope's goal in this process is relatively straightforward: to help consumers more easily find out information about the advisors they are working with, especially regarding those who have prior conduct indiscretions in their regulatory record.

While some may feel awkward, uncomfortable, or have flashes of "Big Brother is watching" about the amount of information that BrightScope publishes regarding individual advisors and firms, the reality is that BrightScope is simply capturing already publicly available data that regulators require advisors to disclose. As a result, the real distinction of BrightScope is not merely the data it reports on; it's the accessibility of that data for the consumer.

After all, as noted earlier, if a consumer wanted to check up on an advisor - not necessarily even knowing where to look - the individual would have to separately search FINRA's BrokerCheck, the SEC's IAPD system, and then contact state insurance and investment regulators in all 50 states, for a total of 102 points of contact, trying to determine if/whether an advisor was registered there, and if so whether there were any prior indiscretions. With BrightScope, there's simply one page to access, that aggregates the information together for the consumer.

Perhaps even more important, though, is the potential that a consumer could find out about an advisor's indiscretions through BrightScope without even visiting the site to look up the advisor. Because BrightScope has created an individual page for every advisor, and those pages can be catalogued and indexed by search engines, the reality is that a mere Google or Bing (or other engine) search in the future could turn up the advisor's BrightScope page as a top search hit. Information about advisors becomes more findable. The end result? Consumers will quickly discover when advisors - such as Bambi Holzer - have a history of serious regulatory indiscretions, to make a more educated decision about whether to avoid the advisor, and/or at least demand a substantive explanation before working with the advisor.

Creating Standards For Advisors

Ultimately, BrightScope hopes to do more than "just" be a better regulatory catalogue of advisors. As visitors to the advisor pages might note, BrightScope currently includes metrics around not only conduct, but also experience and designations. BrightScope also recently made some waves by proposing a framework for advisors to report on performance results for their clients, entitled "Universal Advisor Performance Standards" or UAPS (which will be discussed further in a future blog post). In this regard, BrightScope ultimately hopes to lend legitimacy to advisors - or at least, to "good" advisors - by setting forth metrics so that consumers can better understand the experience, credentials, conduct, and (performance) results of the advisors they are prospectively going to work with.

However, in this regard BrightScope has also brought about some controversy. After all, the reality is that currently BrightScope sets and "scores" the metrics; for instance, on my BrightScope page the bar for "Experience" is only about 25% filled - apparently in BrightScope's view, that's all my 12 years of experience merits, even though the CFP Board grants the CFP marks after only 3 years of experience (soon to be 2 years of experience in certain situations!). Similarly, BrightScope soon intends to include metrics around designations as well - which may in turn create further waves as BrightScope implicitly and explicitly "grades" which designations are good enough to fill the bar and which are not.

Changing Your BrightScope Page

In some cases, an advisor may review their BrightScope page and find information that appears to be incorrect. Of course, the reality is that since BrightScope pulls data from FINRA and the SEC, an "error" may imply that the advisor themselves reported something incorrectly on their FINRA U-4 or the SEC Form ADV. In fact, to protect consumers and the integrity of their data, BrightScope will not modify any information that was obtained from regulatory filings directly - instead requiring advisors to update their filings with their regulators so that BrightScope can then draw on the updated information directly.

In addition, BrightScope allows you to claim your page by clicking the "Update This Profile" button, and once registered you can contact BrightScope directly to add more detail to your profile for a fee. The cost, at $100/month (or $250-$500/month for firms with multiple advisors and further customization), allows you to further expand upon your BrightScope page and turn it into part of your firm's marketing, supplementing voluntary detail on everything from your professional designations to your membership associations to your firm's services, as well as linking in some of your articles/publications and your social media links. For example, you can compare my BrightScope page to other financial planners like Russ Thornton or Roger Wohlner to see a more thorough paid profile. BrightScope also gives advisors the opportunity to answer consumer questions or write guides that appear on the BrightScope site and are connected to the advisor's profile to further demonstrate their expertise (as can be seen on both Wohlner's and Thornton's BrightScope pages). (Stay tuned for a future blog post about whether I think it's a good deal to invest time and/or dollars into BrightScope's paid Advisor Pages.)

BrightScope - Temporary Fad Or Trend To Replace BrokerCheck?

While BrightScope has certainly made some waves and raised some eyebrows, the fundamental question is whether BrightScope - or a similar platform - is just a short-term fad, or whether it represents a trend that is here to stay.

Without a doubt, I think the spirit of what BrightScope is trying to accomplish - greater transparency for consumers - isn't going away anytime soon. Their efforts to bring better visibility for the conduct and regulatory background of advisors alone represents a tremendous leap forward for the public; in fact, one wonders if FINRA's recent updates to BrokerCheck may have been precipitated by BrightScope's success in outreporting regulators with their own regulatory data. Nonetheless, the reality is that financial advising is a regulated business with public registration and conduct reporting required; in this regard, all BrightScope is really doing is finally bringing transparency to data that arguably should have been more accessible and findable for consumers in the first place.

It is less clear whether BrightScope's efforts will gain momentum to further establish and quantify standards for advisors around experience, education/credentials, and even performance and results for clients. Ultimately, it is the progression of any profession to have more and higher standards to which practitioners will be held accountable, and the overall momentum of financial advising is clearly towards improving standards. Will BrightScope ultimately be the one that sets the bar? It's not clear at this point, although they're certainly working hard to move the ball forward.

Perhaps the greatest question to BrightScope's viability simply hinges on whether it can really generate enough visibility for its service and its advisor pages that they begin to show up when prospective clients search for advisors - or gain such prominence that "BrightScoping" a prospective advisor will become a standard action for consumers before deciding to work with a particular advisor at all. Of course, ultimately BrightScope needs to monetize its data and service as well to be viable as a business, and that too generates challenges for them. When BrightScope first launched its advisor pages - with a fee to make the page more presentable - it was generally received in a negative manner by the advisory community, which complained that the regulatory information was outdated and/or incomplete and that BrightScope was holding the accuracy of their profile hostage in exchange for a fee. BrightScope responded that factually incorrect or outdated information could be updated without cost with regulators themselves (and would be updated on BrightScope shortly thereafter) and that only supplemental information has a fee; nonetheless, if BrightScope is genuinely successful in driving consumer traffic to its website and its pages become a standard "first step" of due diligence for consumers, it's a fine line between whether paying for a BrightScope page is an investment in marketing or a virtual requirement to substantiate a web presence that your clients and prospects may inevitably find anyway.

But the bottom line remains that BrightScope's vision of greater transparency for consumers is not a short-term fad but a trend in the broader profession that BrightScope has simply been acting (or capitalizing?) upon. Advisors who aren't comfortable with the amount of information visible on their BrightScope page need to adjust to the fact that it is publicly available information from regulators already. BrightScope isn't sharing anything consumers can't find anyway; they're just making it more accessible and findable and aggregating it together from multiple regulatory sources to be far more consumer friendly.

The upshot, however, is that greater transparency ultimately creates the potential for all that regulatory data about advisors to finally be put to good use - allowing consumers to really check out their advisors easily and find out what they need to know about the advisor's regulatory conduct history to make a proper decision. If BrightScope can really deliver on that value proposition alone, they may still clean up the advisory industry more than the regulators ever have. If they can set standards regarding even more metrics for evaluating advisors, they have the potential to dramatically change the industry.

So what do you think? Have you checked out your own BrightScope page? Is it accurate? Do you know if any of your clients or prospects have ever checked out your BrightScope page? Have you paid for the BrightScope service to upgrade your page? Did you find it worthwhile? Would you consider linking from your website to your BrightScope page as a third party affirmation of your regulatory record?