Executive Summary
Determining whether an advisor is any good is a remarkably difficult task for consumers; in fact, just determining whether an advisor has ever committed a regulatory violation could require contact to as many as 102 different agencies - from 50 state insurance departments and 50 state securities regulators, to FINRA and the SEC. While all the information is technically part of the public record, and to that extent is "transparent," the difficulty to view it in any consolidated manner - much less as an easy resource - renders its value remarkably limited as a consumer protection.
One company trying to tackle this problem is BrightScope, which is drawing all the publicly available information together into a central resource that consumers can use to check out their advisors and determine if there's a clean regulatory record. Recently, BrightScope announced it is also aiming to draw on fee details disclosed by RIAs in their Form ADVs to make this information readily to consumers, and is looking to add more pertinent information as well, to ultimately provide a one-stop resource for consumers to find out key information about an advisor's experience, education, costs, and regulatory record.
While shining such a bold light of transparency on the activities of advisors will no doubt draw some criticism, I believe that this kind of transparency is crucial for consumers to develop better trust with financial advisors, and ultimately can help ensure that consumers always know the truth about who they're working with as "Brightscoping" your advisor becomes a routine form of due diligence check for consumers. At the same time, the reality is that the nature of our industry is complex, and oversimplification of these realities will not help consumers either.
Accordingly, I'm excited to announce that I will be joining the Advisory Board of BrightScope in a consulting capacity, to try to help support their efforts in finding the right balance between fair information about advisors and the transparency that consumers need and deserve.
Who Is BrightScope?
As I first wrote last year, BrightScope started as 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. In 2011, though, BrightScope launched their Advisor Pages, aiming to provide a catalogue of every financial advisor in the country, pulling public regulator data from FINRA's BrokerCheck, the SEC's IAPD system, state investment advisor overseers, and soon state insurance departments as well.
BrightScope's initial release of their AdvisorPages was not terribly well received by the industry; in some cases, data did not appear to have imported correctly from the regulators, or was otherwise outdated or incomplete, and BrightScope's initial model was to charge advisors to modify and add to their pages, which implied that advisors would have to pay just to have the information displayed correctly. Technically, it was always free to correct legitimate errors with BrightScope, and a lot of incomplete information was actually due to advisors not providing all of the details on their disclosures to regulators in the first place, but BrightScope was still off to a rocky start.
Nonetheless, the consumer need is clear with so many different regulators, each with disparate systems and reporting tools and websites, what should be information at the hands of the public is actually remarkably inaccessible. A mere Google search for an advisor's name won't turn up anything; consumers must actually search on the regulators' own specific databases, on the regulator's own websites, to find out crucial information. Accordingly, the goal of BrightScope is pretty simple - pull all that information into a single one-stop shop that consumers can find, either by going directly to the BrightScope site and searching for the advisor, or just having the individual's AdvisorPage come up directly from search engine results!
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, it's important to bear in mind that BrightScope is simply capturing already-publicly-available data that regulators require advisors to disclose. In other words, BrightScope isn't sharing anything new, unique, or secret; they're just making it more accessible and transparent for consumers.
Supporting Improvement Of BrightScope AdvisorPages
The catch to bringing transparency, however, is that information still has to be presented in a sensitive and appropriate manner, or it risks turning transparency into a new form of confusion or misdirection. In point of fact, even I expressed some criticism about how BrightScope calculated and reported an advisor's work experience. Fortunately, though, BrightScope is committed to improving their AdvisorPages to be a more effective resource for consumers.
Accordingly, my involvement with BrightScope will focus on helping them to sort out the public information they gather on advisors and how best to present to the public, in the spirit of transparency for consumers while also being fair and balanced for advisors. This may include modifying how advisor experience is communicated, making sure that crucial public regulatory misconduct is clear and accessible (but also has context about how long ago the incident occurred), and figuring out how to best communicate public information about advisors' fees and expenses. I doubt everything will be perfect in every step along the way, but I'm committed to working with BrightScope and seeing that both consumers and advisors are treated fairly while getting the public the information they deserve.
As I wrote last year, I don't believe that the move towards greater transparency for consumers - as embodied by companies like BrightScope - is just a short-term fad; it's a persistent trend that ultimately can help financial advisors in the aggregate build trust with the public. Ultimately, it's my hope that no consumer will ever work with an advisor without first having the opportunity to see clear information about that individual's experience, education, costs, and regulatory record. And perhaps someday, just as we tell people that a great way to find information is to Google it, that we'll tell people when they're thinking about working with an advisor they should always BrightScope the advisor first, as a fundamental starting point for due diligence.
In the meantime, I look forward to working with the BrightScope team, and some great colleagues on the Advisory Board like "Reformed Broker" Josh Brown. And while I certainly won't profess to have total (or any) control over BrightScope itself - I am merely serving in an advisory capacity! - if you do have thoughts about BrightScope, what it's doing, and their push towards transparency, I hope you will feel free to add your comments to this blog post, or contact me directly, so that I can help to bring the thoughts of more advisors to the table!
I’ve been leaning on BrightScope for some time, but especially now in my new role at TradePMR. I do not know how folks survived without it in the past. I am thrilled to see Mike Kitces added to the advisory board of BrightScope. I feel (know) adding Michael will lend tremendous value and deep insight to the financial advisory world.
Michael,
I am no fan of this company, let me explain why.
When I look at my own listing, I STILL see the following:
Description:
George Papadopoulos an executive and is sole owner of George Papadopoulos, CPA/PFS, CFP, a $13M dollar RIA. George has held an industry securities registration for 2 years and is subject to SEC oversight.
Wow, I am an executive, so helpful to prospects! The AUM number is wrong, you wonder if they update once a year or two or three. I held securities registration for just 2 years!!!!! WRONG AND DANGEROUS INFO FOR ME AND PROSPECTS! SEC oversight? Not really, wrong again, it should be my state’s oversight!
They show my address and location map as my residence in Ann Arbor and not my official business address in Novi. Wrong and dangerous info again. A prospect may think I work out of my home and doing this part time or something!
Brightscope shows NOTHING under “Professional Designations”, “Membership Associations”, “Firm Services”. NOTHING. Are they serious? And this is supposed to be helpful to consumers? This is certainly harmful to me as it is WRONG and MISLEADING!
Under EMPLOYMENT, Brightscope shows my tenure at Ernst & Young but NOT Deloitte. It also shows my own firm TWICE with only a month difference in the starting date. What the hell, I am getting angry now!
They show I am registered, thank you! They also show the last time the ADV was updated was back in 2010! Prospects may think I am out of business. This is getting ludicrous now!
They show I passed a Series 65 & Series 63 a gazillion years ago. Wow, so nice of them to feature this info here. NOT A SINGLE word on my CFP and CPA/PFS designations and no NAPFA membership mention!
And these guys are supposed to disclose our fees correctly? Really?
And no I do not want to open an account to fix these things! They should fix them or find another target market.
Thanks for the platform to vent;-)
George Papadopoulos
George,
A few thoughts here…
The designations and associations is something that isn’t disclosed to regulators, so frankly for better or worse BrightScope has no way to know about that stuff UNTIL you report it to them. I think their starting point was just the regulatory data, not the least because FPA, NAPFA, etc., are not – to my knowledge – publicly sharing membership lists. Ditto for most designations (although I think some may be public enough to get data; that’s a question for BrightScope).
The employment information is also limited to what’s in public disclosures. I’ve griped to BrightScope that their own measurement of my experience is out of whack because of this. Again, it will be a matter of finding the line between what’s available and what advisors are willing to fill in about themselves.
Bear in mind, while it’s painful to see how limited some of the public data information is, the fact that they only use regulatory data also at least ensures SOME third-party review and verification of the data. If the site was open for people to edit, they could also just outright lie, and undermine the validity of the data. Granted, someone could lie to regulators as well, but at least that has some serious ramifications for them to weight!
Finding the balance between what’s available publicly, what’s reasonable for advisors to modify, and what threatens the credibility of the information by letting it be modified, is part of the messiness here.
But then again, consumers have to deal with this ALREADY. BrightScope is just a reflection of the sad state of public disclosure and piecemeal information that the regulators provide to/for consumers.
– Michael
Michael,
Put me on the list of disenchanted with extortion.
I have an appointment to view a demo next week. While I am trying to keep an open mind, the pricing that I have been given so far seems high and it is difficult for a consumer to realize that the the advisor must pay to have their phone number, picture, and other additional information included. The impression that one would have now of my profile is that I don’t care about how it looks, when really, it is a marketing budget decision more than anything else. As a fee only planner who wants transparency in this industry, I hope BrightScope makes it transparent to the consumer what is offered for free and what the advisor must pay for in their listing.
Transparency is so key for consumers to be able to get objective financial advice. It’s great to see that Brightscope is making such an effort to advance this. I’m excited to see what they can do.
Thanks for helping the cause!
May be a poor choice on your part. Their purpose is not transparency for consumer but to make a profit. Your association with them tarnishes your brand, but certainly helps them. As noted by others they have problems with accuracy, charge too much, and frankly I suspect that since quality of services provided is subjective, that they will not help consumers but hurt advisors by driving the cost down to the lowest common denominator. Unless you believe that the quality of the advisor is determined by price charged?
I have a great deal of respect for you. You really are the go to resource for expert financial planning information.
Something about this just doesn’t sit right with me. I feel like an old friend showed up to sell me some whole life insurance. Maybe that’s really what I need, I just can’t be sure.
I agree with LeGrand and think it (oh so slightly) diminishes your name while bolstering theirs.
Michael,
I just read the RIABIZ article and I am very disturbed by the nature of your association with Brightscope! Is it true? I think Erin and LeGrand are correct that you are putting your great brand in danger by getting involved!
It comes down to this with me:
How can a company get the very complicated fees & services issue correct when, in my case, can’t get so many SIMPLE things right? Why should I be forced to edit my own information myself? Do we need yet another one of these online directories? I do not believe that they will do the hard manual work (you can compare it to actual financial planing) to get all fees displayed correctly when they can just slap something together (kind of like a 1% AUM & go on an asset gathering spree). The last sentence was a lame attempt to inject some humor in this unfortunate (in my own opinion) development.
I am ALL for transparency, especially fees! But I am scared to see what this company will do to my own page when my fee is calculated by AUM but it provides truly comprehensive services (including tax planning and preparation, quarterbacking other professionals, even travel planning and doing the dishes). Ok, just kidding about the dishes.
I am really scared what my page will look like. On the other hand, it looks scary enough as is.
So, please be very careful about the conflicts of interest issue. I wish them and you luck. I am treating myself to a short trip to Norway tomorrow to go climb some rocks. See you!
George
George,
Well, ultimately the goal is to figure out how to make that page look so it isn’t “scary”! After all, our own firm Pinnacle falls into the category of providing comprehensive services for what is, to say the least, more than the fee you’re pay for just a passive money manager. So yes, I am looking at this in the context of the fact that I’ll have to “eat my own cooking” as all of our advisors (including me) have BrightScope listings.
Bear in mind, though, that for all the information on the BrightScope page – from the fees, to your (and others’) job history – the data comes from what’s on the Form ADVs. So yes, there are some potential limitations in the data, to the extent that if it’s not thoroughly completed on Form ADV, it’s not going to be thorough on BrightScope either.
But again, all BrightScope is doing is reporting ALREADY public data from regulatory filings. If they’re literally scraping the data “wrong” from public documents, then I’d be the first to pound the table that it has to get fixed ASAP. But if the data is incomplete or spotty because some advisors don’t fill out their Form ADV completely in the first place – which, sadly, I suspect we’ll find is the case for some advisors – then ultimately the responsibility still lies with the advisor. It’s not BrightScope’s “fault” for an inaccurately completed Form ADV.
I still remember some of the complaints that came to me by email last year when I first wrote about BrightScope on this blog, and I actually looked up the ADVs of the advisors who complained. Granted, it was a very limited sample and not necessarily representative, but every scenario I saw where there was a complaint about the data on their BrightScope page, it was a 100% accurate reproduction of what was on their ADV. In other words, what they were complaining about was their own failure to provide effective information on their own ADV; some of them didn’t even know/realize that it was literally just a reproduction of what they themselves wrote on their own regulatory filings.
Part of the feedback I’ve given to BrightScope already is that they need to give advisors some better capacity to correct the information, and to do so in a timely manner. But at the same time, I am sensitive to the fact that providing too much flexibility invites the worst in our industry to just post misinformation about themselves, which undermines integrity for all of us.
Frankly, I just wish the Form ADV was better designed to easily and cleanly capture all this information in the first place. At some level, I think it’s really a shame that it takes third-party services like BrightScope to make the regulators’ own public information actually accessible to the public. But getting the SEC to change – with the transparency of their data, or even just the design of Form ADV – is a whole other can of worms! :/
– Michael