Last Tuesday, we announced the launch of BrightScope Advisor PagesTM. With detailed data on over 430,000 advisors and 40,000 advisory firms, BrightScope Advisor PagesTM is the first comprehensive, free, easily searchable database of financial advisors. In the first week since launch journalists from USA Today, Dow Jones, Bloomberg, the Associated Press, the Wall Street Journal, CNN Money, Reuters, the Street.com, TechCrunch and Yahoo! Finance have all covered the Advisor Pages. The coverage attracted a high volume of interest from consumers, and the number of pageviews on Advisor Pages in the last week suggests that consumers are hungry for this information.
Why the Advisor Pages are Important
Over the past few years there have been numerous articles advising consumers on how to find a qualified financial advisor. Despite the volume of articles on the topic, most consumers remain woefully unprepared to research and find a qualified financial advisor. While there are some databases of advisors out there in the marketplace, none are comprehensive, many charge the consumer for access, and none have the kind of detailed disclosure information that is required to perform thorough due diligence. The government databases â€“ primarily from the SEC, FINRA and state insurance and securities regulators â€“ are difficult to access, donâ€™t have robust search capabilities, are full of legalese, and are not indexed by Google. These shortfalls make the government disclosures all but irrelevant.This is a big issue. In a time of financial crisis and after we have come to terms with numerous frauds in the investment world, it is vitally important that consumers have access to the data they need to make smart financial decisions. For many, this means making one major decision â€“ choosing a financial advisor. At BrightScope we believe that the best way to help consumers find the right advisors and to help advisors grow their businesses intelligently is to create a simple, comprehensive, search-friendly database of financial advisors. The launch of BrightScope Advisor PagesTM is the first step in that process.
The Role of Government in Disclosure
Fortunately we are not the only folks committed to improving advisor disclosure. Just last year Congress passed a comprehensive financial reform bill that included a mandate for the government to disclose more and better information about financial advisors. To start, the Dodd Frank reform bill required the commissioning of a study to decide how to improve financial advisor disclosure. That study is a must read and can be found here. Unfortunately, while the intent was good, the result fell short in many material ways. It is as if the authors were not aware of the great advances in open government data that have taken place over the past few years. The most significant issue is that the study continues to recommend an enhanced role for government in the online publishing of disclosure data. We argue for the private market approach best expressed by Robinson, Yu, Zeller et. al. in their seminal treatise on the changing role of government, Government Data and the Invisible Hand:
In order for public data to benefit from the same innovation and dynamism that characterize private partiesâ€™ use of the Internet, the federal government must re-imagine its role as an information provider. Rather than struggling, as it currently does, to design sites that meet each end-user need, it should focus on creating a simple, reliable and publicly accessible infrastructure that â€œexposesâ€ the underlying data. Private actors, either nonprofit or commercial, are better suited to deliver government information to citizens and can constantly create and reshape the tools individuals use to find and leverage public data.
Many government entities – including HHS, EPA, and the cities of Seattle/San Francisco – have successfully embraced this approach and have as a result greatly expanded the utility of their data. Government entities have completed this at a significantly lower long-term cost than building complicated disclosure websites. Unfortunately, the SEC study on advisor disclosure argued for just the opposite. The study’s authors suggested several minor improvements to the existing disclosure websites, but did nothing to make the data more easily accessible to private actors.
We strongly believe that the best use of government dollars (SEC) and SRO dollars (FINRA) is not a long and complicated study, review, procurement, or rulemaking process that will take years to yield improvements which by the time they are launched will already be outdated. By mandating the right types of disclosures and then making that data publicly available, government/SROâ€™s can save a whole lot of money and let the market do more to self-regulate.
As former financial advisors ourselves, we knew that we would receive some strong pushback from the firms and advisors in the database. Industry message boards quickly lit up with mostly anonymous comments – both positive and negative – about the quality of the Advisor Pages data and particularly BrightScope’s role as a for-profit business in the disclosure process. We have given it a few days to percolate and now hope to address some of the criticism we have received:
- Data Quality: The biggest criticism thus far has been about data quality. A journalist we respect – Jessica Toonkel from Investment News – wrote an article titled ‘Advisors Take a Dim View of BrightScope‘ in which several advisors voiced their concern that some of their data is incorrectly displayed on BrightScope Advisor Pages. Here are the highlights:
- Overall Data Accuracy: When Jessica reached out to us and shared the concerns of a few advisors we were able to show that in the vast majority of cases the data integrity issues raised were actually cases where the advisor was either unfamiliar with their own public filings or made a mistake in their filing. While we can’t guarantee the accuracy of our data in all cases, no advisor data provided by Investment News revealed inaccuracies in BrightScope data per the government filings BrightScope obtained late last year. If an advisor does find a material discrepancy between our website and the filing we used, we encourage them to reach out to us so that we can quickly address the issue.
- Assets Under Management (AUM): In the same article, Investment NewsÂ performed a survey asking if the advisor’s assets under management were correct. 84% of advisors responded that their AUM numbers were not accurate. However, in all the cases brought up by Investment News BrightScope shows the exact same AUM number as displayed on the SEC ADV filings as of year-end 2010. Why then are the advisors upset? As it turns out most advisors either don’t agree with the SEC methodology for calculating AUM (the SEC excludes AUA from AUM and thus understates the actual total assets managed by the advisor) or they are dually-registered with FINRA, which currently doesn’t require AUM disclosure. BrightScope also uses firm-level AUM numbers rather than individual advisor AUM, which some advisors argue can lead to inaccuracies. We understand these concerns and are very sensitive to them. We know that while their anger is addressed at us, the issue is really with the current SEC/FINRA disclosure regime from which we obtain our data. To address this issue we are working with the more than 75 advisory firms that are either clients or beta testers to develop a more comprehensive AUM calculation methodology, and will ultimately allow advisors to update their AUM numbers at no cost. This is the type of fast action and responsiveness that the private market can support that can’t be matched by government. Stay tuned for an announcement in the next few weeks when this new system has been launched.
- Data Timeliness: Because the SEC/FINRA do not make their databases available in machine readable formats, the process of obtaining the data is costly and time consuming. In fact, the SEC/FINRA actively seek to prevent the use of their data by the public. While the SEC claims to not “necessarily oppose the widespread dissemination of registration information” it currently employs expensive private market solutions as counter-measures to prevent access to this public disclosure data. (It is worth noting that the collection, disclosure, and ‘defense’ of the disclosed data is paid for with taxpayer dollars.) In order to overcome these hurdles we frequently have to go through the states, which adds an extra layer of bureaucracy to accessing new filings. That said, we are working on ways to access new advisor and firm filings quickly and hope that we can further reduce the short time lag between filing and updating the Advisor Pages. If the SEC is to comply with the recent Presidential memorandum on regulatory transparency it will likely seek to make advisor data more readily available in the future. For the time being, we encourage all advisors looking to update their Advisor Page to send over their new filing at the same time it is filed with SEC/FINRA so that we can expedite the processing on our end. We will of course do this at no cost.
- BrightScope’s Business Model: One of the most interesting pieces of feedback we have received relates to our business model. Some advisors have expressed concern that in order to update some parts of their Advisor Pages – AUM, client types, photos, description, designations, links to blogs etc. – they need to be a subscriber. One advisor said he felt like has was being “held hostage” by BrightScope. Again, we are sensitive to these concerns. The first thing an advisor can do if they think data is inaccurate on our site is to compare it to their current ADV filing. We have found that in 90% of cases the inaccurate data is actually data that was inaccurately filed with the SEC/FINRA by the advisor and the inaccuracy is simply being reflected on the BrightScope website. If the advisor wants to fix this data they can simply update their filing and BrightScope will update our database.Â We are also working on making certain pieces of data where the advisor feels the SEC rules are too restrictive – assets under management and client types – free to update and change. However, if the advisor wants to pursue full customization and add data that is currently unavailable through the SEC/FINRA we will continue to offer a subscription at $100/month. With the traffic volumes we are seeing and with future enhancements we are planning, we expect Advisor Pages to be one of the most effective marketing tools available to advisors.
The Path Forward
While I spent a good piece of this blog post responding to criticism I would like to point out that internally we see far more positive comments than negative. It is our job to balance both forms of feedback to ensure we are building a product that will meet the needs of consumers and advisors. Just this morning we received the following unsolicited feedback from an advisor:
â€œ(K)eep moving forward on the Advisor Pages project in spite of the protests. There is no way for the average investor to use the internet to find comprehensive data for finding a decent financial advisor or for researching a financial advisor they have already met. The SEC and FINRA sites are needlessly complex and nearly impossible to use for most investors, as well as all parts of the ADV. There will be some growing pains here, but overall the outline we see so far is a huge step in the right direction for investors.â€
This type of feedback from advisors encourages us to push forward, while also aggressively pursuing updates and improvements to address the concerns of those advisors who are skeptics. I think many advisors will find that if they reach out to us and start a dialogue that we are very responsive and excited to work with them. We view this initial Advisor Pages launch as the first step in a grander vision of simplifying financial decision-making for consumers. We appreciate your support as we pursue that goal.
We have many enhancements and improvements we will be rolling out in the next few weeks and are excited to share them with you. Please reach out to us via email with questions and feedback: email@example.com.
The BrightScope Advisor Pages Team