Mike Alfred may not be the most popular guy among financial advisors today, but the smart ones know they need to pay attention to him. As co-founder and CEO of San Diego, Calif.-based BrightScope, Alfred has knocked the dust off advisor data and put it on display in a new way.
Advisors’ work and personal histories are now like colorful objects in a glass case: BrightScope airs out education background, assets under management and even disciplinary records on its website, and offers easy access to investors and potential clients.
Alfred says his firm is simply shedding more light on what is already publicly available—a service he insists is critical for the industry’s survival in an era when consumers are demanding increasing transparency from the financial services businesses they patronize.
What’s more, BrightScope is not the only one with this idea. The firm is just one of a number of startups looking to create online financial advisor directories and rankings. Advisor disciplinary records have long existed in databases at FINRA, but this new generation of firms is putting the data at consumer’s fingertips in a much more immediate and accessible way. There’s Paladin Registry, which solicits information from reps; AdviceIQ, which only allows advisors to list if their records are clean; Advizent, a soon-to-launch members-only listing. All derive their revenue from charging advisors. Some advisors pay because they believe that what they don’t say about themselves, someone else will say for them.
The proliferation of data sources puts new onus on advisors both to monitor what is being published, as well as to get more comfortable in the public eye. Advisors are going to be visible whether they like it or not. At the very least, they have to make sure that the information being broadcast is accurate. Those who take a more active role in shaping their online profiles will have a better chance to define the way the public sees them.
Referrals from friends will continue to be the primary channel investors use to find new financial advisors. But as investors become increasingly web-savvy, and as the amount of information online proliferates, you can bet they will be using these profiles to get the dirt (if there is any) on any advisor they are considering, regardless of how glowing the friend’s recommendation might be. There’s simply no opt out. Advisors who ignore this reality will lose business.
BrightScope collects public records from FINRA and the SEC through a proprietary software program, and re-organizes that data online for investors—for free. If advisors pay BrightScope $100 a month, they can add their own details. If advisors see errors in their records, they have to turn to the regulatory agency where that information originates. Investors can already access much of this data directly from FINRA’s BrokerCheck and the SEC’s Investment Adviser Search, or IAPD. Until recently, a consumer had to know the full name of the advisor. But on BrightScope, a consumer can search by city, type of client, even average account balances among other criteria, if they choose. There’s also, in some cases, more detail in BrightScope’s profiles.
A recent search on FINRA’s site of a random advisor turned up disclosures, employment history, and even general exams the rep had passed, among other information. On BrightScope a search pulled up quite a bit more—the assets under management of the rep’s firm, the exact names of the exams and dates taken, plus—which may be of interest to investors—the way the advisor is compensated.
In the meantime, FINRA is considering ways to disperse its own records more widely. The regulator recently invited the public to comment on how BrokerCheck can use its data more efficiently. One proposal is to sell these records to third parties. BrightScope crawls FINRA’s site itself, but if FINRA were to begin selling the data it would certainly make it easier for other sites, and more consumers, to access that information, too.
FINRA is still evaluating comment letters (the comment period ended April 27) concerning third party record keepers, but in mid-May, the regulator announced a number of improvements to its system “to help users more easily access broker-dealer and investment adviser registration information.” Users can now search for and locate a financial services professional based on main office and branch locations, and can conduct ZIP code radius searches.
On Paladin, investors can request data directly from advisors, and then benchmark one advisor against another using an advisor scorecard. The site also has research on 225 different certifications and designations and their prerequisites so investors can see what those letters after a rep’s name mean—and what it took to earn them.
Jack Waymire emphasizes that Paladin’s data comes right from the rep; it’s not “screen-scraped” from FINRA, he says. But he adds that he can’t understand why a rep would refuse to offer information about himself if it is requested by an investor—at least a rep that a consumer would want to hire.
“Higher quality advisors have nothing to hide, and lower level reps are uncomfortable with transparency,” he says. “If they refuse to answer questions, we go back to the investor with an alert. And we say our experience is you may want to avoid this advisor in the future.”
Many industries are already living with this level of scrutiny. The Internet is a feast of information—some accurate and some not. Anyone who provides services to consumers today, from baker to dentist, lives in a world where their work, and opinions about them, are only as far away as the next click or Google search. Sure, some consumers can smell the difference between a planted review and a genuine account of one’s experience, or an irrational customer with an ax to grind and one with an honest complaint. But no one likes to be dinged in front of millions of eyeballs, and full transparency can be uncomfortable to live with.
“There is a question of control, and that can be a scary situation,” says Alois Pirker, research director of the Aite Group’s wealth management practice in Boston. “It’s the same as a hotel or restaurant where people keep writing bad press on you. You may not be doing anything wrong, and you keep getting knocked. So there’s a risk there.”
Leveling the Playing Field
While transparency can be daunting, some also see it as a chance for smaller reps—say, those at independent broker/dealers or boutique investment advisor shops, to gain equal footing with larger reps at wirehouses.
Charles Goldman and Steve Lockshin certainly believe it’s time for those in the independent space to have more voice. The two are co-founders of Advizent, a new consortium of registered independent advisors (RIAs) still in the planning stages, but expected to launch in early 2013. The site, while offering a way for consumers to learn more about independent advisors, will also allow advisors to access more customized products and services from vendors who work with this community. Investors will be able to pull data on advisors such as the audit history, how best practices are applied to areas such as technology, if they are affiliated with Advizent. The firm will rely on an outside independent board to vet the advisor before he can join the group.
“They will set up standards, and I expect that will change over time,” says Lockshin, who is also an RIA and CEO and chairman of Convergent Wealth Advisors based in Maryland “As the industry matures, we will continue to ratchet up the standards to lift the bar for the entire industry. And members will have to modify or will be asked to leave. The goal is to keep the standards black and white as opposed to whether you are a nice guy.”
Goldman, who served time as an executive in the RIA businesses of both Fidelity and Charles Schwab, says some of the standards are likely to include how an advisor is compensated, his business practices, and whether he has a good succession plan. Members will pay a fee to join, somewhere in the neighborhood of $25,000 to $100,000 a year depending on the size of the firm. And with that membership fee, it’s likely firms are going to want to have some say about what kind of information is published about them.
That’s why the outside board is key, notes Goldman. “We will correct it if we make a mistake,” he says. “We’ll clearly have some sort of review capability. It’s another reason why we’ll have an external board to govern those decisions.”
At AdviceIQ, vetting is more streamlined. Advisors—whether from a wirehouse, IBD, RIA, bank brokerage, etc.—can only get listed in the directory if they have zero complaints on their records. Investors can’t search for compliance concerns about their advisors, because advisors with complaints won’t even be listed, says Nicholas Stuller, co-founder, CEO and president of AdviceIQ. (Penton, publisher of Rep., has a minority investment in Meridian-IQ, the company that created AdviceIQ.)
The site checks member advisors, who pay $995 a year for the service, against all federal and state regulators, says Stuller, and only those who are free of dings can complete a profile, which must then be approved by the advisor’s own compliance officer. Launched in January, the site hasn’t pulled down any profiles yet, says Stuller. But not all who apply get in.
“Roughly 7 percent of all advisors across the insurance, brokerage and advisory world have some record or disclosure,” says Stuller. “So roughly 7 percent of advisors who have applied to AdviceIQ have been turned away. Some firms have a higher percentage. Some have a lower number.”
For investors, there’s likely to be some comfort in having a directory or database where information is pre-vetted for accuracy, and where they can see how a current advisor charges fees or whether they’ve had compliance concerns. Some consumers want that seal of approval. A few, though, are still likely to do the research on their own.
Should advisors take the bait and join some of these new services? That depends in part on the information that’s there and how prominently these new services rank in search results. Reps aren’t going to want, or need, to join all of these sites. But advisors do need to manage what potential clients may find, or at least tell their own story.
“If you want to hide your Social Security number, that’s one thing,” says BrightScope’s Alfred. “But the fact that on the record with FINRA you’ve been sued by three clients? That’s not the kind of information you should be able to hide.”