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!