News, Vision & Voice for the Advisory Community
After two years, less than 1,000 advisors paid for the website and BrightScope hopes free is a better price-point for some
December 12, 2013 — 7:20 AM UTC by Lisa Shidler
Brooke’s Note: For a free enterprise system with fairly minimal regulation to work, like the RIA business, you need somebody helping consumers to do the due diligence. Part of that is media like RIABiz. Part of it are tracking companies like BrightScope. But the tracking is one thing and the business models are another. We are trying to invent our model everyday here at RIABiz, without imposing fees on advisors. BrightScope is going through a similar process and here’s the latest chapter for them.
BrightScope Inc. announced today it is now letting advisors join Advisor Pages service for free — eliminating a $1,200 annual fee that advisors have grumbled about since the service launched in March 2011. See: Under fire, BrightScope says it will allow advisors to update simple information for free.
The San Diego-based firm is also hinting about future collaboration with fellow data tracker Morningstar. For example, Brightscope may assist advisors in building portfolios using input from the Chicago giant.
“We admire everything they’ve done,” says BrightScope co-founder Mike Alfred.
A Morningstar spokeswoman declined to comment saying that her company declines comment on all potential projects.
Though Brightscope is doing a 180 on charging fees, Alfred says that the initial strategy made sense.
“We think we did the right thing with limiting the profile initially to paid users. But we think it’s time to open the platform more broadly. We want to remove any barrier to start the process. If we tell people they can’t engage until they pay, then we’re losing 90% of the people from the start.”
Web traffic bonanza
Alfred declines to state specifically how many advisors pay for the profiles but acknowledges that less than 1,000 advisors currently pay for a profile. But for what it lacks in subscription revenue, it makes up for in web traffic with a whopping 400,000 unique visitors per month.
He’s hopeful that BrightScope will gain more advisors on its pay-list by letting advisors sample it for free.
“Our adoption rate is slower than we’d have liked. We want to layer on additional services over time. More consumers are interested in looking up their advisors and more advisors are coming to the web to market it,” Alfred says. See: BrightScope debate has familiar feel of an industry being dragged kicking and screaming into the new world.
Until today, the only option was for advisors to pay $95 a month for a subscription. But now, advisors will have three options. For free, they can gain a basic subscription that will allow them to include a picture as well as participate in the site’s Q&A section with investors. The next level is “plus” which is a $25 monthly fee which lets advisors post their own pictures and information about their firm but also adds additional customization where advisors can begin to contact consumers and also to highlight more information about their firm.
The $95 a month fee, or “pro” subscription offer advisors the most comprehensive services including more visibility on the website and getting featured in advertisements. Advisors can highlight their specialties as well as uncover visitor insights
Jack Waymire, principal of the Paladin Registry, agrees in principal with BrightScope’s ambitions to be fully transparent but feels the efforts are ultimately out of touch with reality. See: Why a reputation of shadiness persists in the financial advisory industry.
“They go in and screen scrape and churn information and make it look really good. I think any transparency is extremely positive. But what they’re saying to people is extremely naïve. You can’t say you’re truly vetting 600,000 advisors. It’s just naïve to think you’re truly vetting that many.”
He suspects the BrightScope executives may be getting pressure from investors to ramp up the profits and to grow more rapidly.
“The fact that they only have 1,000 advisors to pay is probably why they’re making this change. No one will get excited about a $1.2 million revenue stream. That puts pressure on them to morph into something more acceptable.”
While Alfred declines to disclose revenues, he says his company has grown about 70% this year and growth is projected at 65% next year — including their better-established 401(k) plan sponsor tracking.
“It’s a great business. We believe if we keep growing at the same pace, it’ll only take us 3 or 4 years before we can become public. We think if we become public we’ll have the ability to fund-raise easier. We want to be independent without having to have a private equity firm backing us.”
Brightscope has 70 employees and it will expand at its current location from 6,500 square-foot to 8,300 square foot on Jan 1. As of July 1, 2014, the firm will have a total of 12,300 square feet.
Third party validation
Even though BrightScope is giving advisors more ability to edit their profiles, Alfred says the basic data is still derived from public websites such as the Securities and Exchange Commission and FINRA. Advisors can’t make changes about their record – all of those changes come from regulators.
“The only way they can modify something else is to modify their U4,” Alfred says.
But Waymire believes that BrightScope’s business plan is based on a false belief that all advisors seek to let light shine in.
“We believe after 10 years of doing this that probably only 10% of advisors can really afford to practice transparency. The weak advisors don’t want transparency,” Waymire says. “A weak advisor withholds information from investors. For BrightScope to go out and say they’re making this universe transparent it’s a little bit bogus. Most advisors don’t want transparency and Wall Street is more or less engineered that way.”
Always bad guys out there
Alfred acknowledges that his company’s site isn’t fool-proof, and there will always be bad people.
“Fraudsters will lie and cheat and there’s nothing we can do about people who are flat out dishonest,” he says.
But Alfred also feels that the site has built credibility by helping good advisors grow their businesses.
“Now, we’ve got advisors who have won $1 million accounts or $3 million accounts because we focused on a pro-type user and we’re getting the best feedback,” he says. “We’ve been getting feedback from serious users not just lightweights.”
Alfred says that since the initial bumps when the company launched its advisor pages, there have been few problems. “It was this, 'oh crap’ moment where advisors suddenly realized their disclosures that no one had ever looked at were suddenly visible.”
BrightScope still plans to craft a rating system for advisors but this is slow-going difficult area to embark on — even for his firm which doesn’t shy away from controversy. See: How BrightScope plans to publicize RIA advisory fees fairly amid all those onion layers.
“This is a sticky situation,” he says. “The ultimate goal is a rating system but it is a dicey area.” See: Does Barron’s really have a bead on the best financial advisors in America?.
Next year, he says he hopes the company will launch a system to give advisors’ scores based on their influence. This would be akin to Klout score on Twitter but more specific to advisors.
“It would be similar to Klout but we have different ideas. It’s in development. “ See: Morningstar’s Mansueto views next horizon: rating RIAs.
As part of the new changes, the company is also including badges for advisors at no additional cost.
The badges make it easy for prospective clients to immediately recognize an advisor with extensive industry experience or an advisor with a clean conduct legacy. One of the badges says, “Verify Me,” which is a way investors can grab data about an advisor’s track record.
Even though BrightScope has had these pages for nearly 3 years, Alfred says that many in the industry don’t understand his firm and he’s OK with that.
“We’ve grown a lot and people still misunderstand us. People still doubt us. If everyone understood what we’re doing, we’d have more competition. Our customers aren’t confused. It’s not important to me that our competitors understand what we do. In a perfect world, we’d like our competitors to be baffled and our customers to love us”
Mentioned in this article:
Data and ratings for RIAs
Top Executive: Jack Waymire
Top Executive: Joe Mansueto
Share your thoughts and opinions with the author or other readers.