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

12 Comments

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

Naive

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.”

Jack Waymire: You can't say you're truly vetting 600,000 advisors. It's just naïve to think you're truly vetting that many.
Jack Waymire: You can’t say you’re
truly vetting 600,000 advisors. It’s just
naïve to think you’re truly vetting
that many.

IPO plans

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.”

Future plans

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.

Badges

BrightScope badges
BrightScope badges

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.

Still misunderstood

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:

BrightScope, Inc.
Data and ratings for RIAs

Paladin Registry
Investor Referrals
Top Executive: Jack Waymire

Morningstar, Inc.
TAMP
Top Executive: Joe Mansueto



Share your thoughts and opinions with the author or other readers.

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Stephen Winks said:

December 12, 2013 — 4:28 PM UTC

Brightscope is a terribly important innovation in the emergence of professional standing within the financial services industry. The transparency and discernment of range of services and ultimately the effectiveness of those services resulting in client ratings of advisors is the Good Housekeeping Standard of Approval. Dalbar has SEC approval for client ratings of advisors which can be used by advisors without violating SEC advertising rules. This sort of external catalyst for the professional standing of advisors introduces a virtuous cycle that drives much needed industry innovation advancing modernity.

If left to its own devices, it is pretty clear the industry does not respect the best interest of the investing public as has been the case over the past 73 years.

SCW

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Grant Barger said:

December 12, 2013 — 5:15 PM UTC

This business model seems to share some of the same tenets as ObamaCare…

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Stephen Winks said:

December 12, 2013 — 9:11 PM UTC

Grant,

The free market it is the exact opposite of the ObamaCare centralized government planning model. The present government sanctioned brokerage compliance protocol is the ObamaCare equivalent, where brokers are not accountable for their recommendations and have no ongoing duty to act in their client’s best interests as required by statute. The Government is presently sanctioning that brokers do not render advice as confirmed by tens of thousands of FINRA administered arbitration proceedings adjudicating client disputes. The government should protect the best interest of the investing public not the brokerage industry’s best interest as that destroys the trust and confidence of the investing public. ObamaCare is destroying the medical profession by making doctors government employees where professional judgment is subordinated to bureaucrats. In the financial services industry, the industry is being crippled by bureaucrats whose loyalty is to the industry, not the consumer.

Let the free market work. There has never been a case since Adam Smith introduced the “invisible hand” in 1776, where the best interest of the consumer has not prevailed. In todays FINRA/SIFMA regulatory world where the brokerage industry interests superceed the consumer’s best interest, we do not have a free market as there is no voice for the consumer as regulators are compromized.

Fiduciary duty in the consumer’s best interest is coming one way or the other. What we have now in the financial services industry is the broker has no control over their value proposition, their cost structure, margins and professional standing. With regulatory reform protecting the consumer’s best interests, faster, better and cheaper advice is in the offering. Importantly, a far higher level of counsel will be provided at less cost to the consumer and the advisor earns 50% more. This is modernity in the financial services industry in the best interests of the investing public.

SCW

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Grant Barger said:

December 12, 2013 — 10:18 PM UTC

SCW,
I didn’t state that the tenets were either good or bad…But I appreciate your opinion. I know you are working for the greater good. I appreciate the work that you do in the Fiduciary World you are a steward for the entire industry… That is a massive undertaking. And I agree in part with your opinions stated here… It is my opinion that Advisors (especially the Advisors reading RIABiz ) have the ability to retain complete control of their value, cost structure, margins and professional standing. Why would any Advisor acquiesce to the commoditization of your suggestions if they were empowered with the knowledge that they are in complete control of their business? Faster and cheaper isn’t always better. Price becomes an issue in the absence of value.

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Stephen Winks said:

December 12, 2013 — 10:40 PM UTC

Grant,
Just take a look at a bond trading desk or retail packaged products and tell me advisors are in control over their cost structure, margins and professional standing. As for value proposition, unless the retail advisor, much less the retail broker, is extraordinary there is very little advisor control as they are limited as to what they can work with. Commodization of advice as a product is where we are now. If advice is approached as an expert process that is managed by the advisor, then you would have a point. That is a distinct minority of today’s advisor, not because they wouldn’t like to, but because large scale support for expert fiduciary standing do not exist at the moment. There are several groups working on it, but it might be two years away.

SCW

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brass monkey said:

December 12, 2013 — 10:43 PM UTC

Are you part of the Brightscope staff Winks? Paid consultant? Free user of their database?

Morningstar can’t be so naive. An IPO? Come on man!

Here we go again with the ever shifting Brightscope business plan. Investors must be breathing down their necks.

And what about those 1,000 advisers that fell for the bait. Is some remuneration in line. Will they get a fancy sticker, I mean badge, free of charge?

The data is dated across all their products. One can find the up to date data in free and government regulated entities. This is a dying bird. How long will the media continue to feed it?

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Randy Wall said:

December 13, 2013 — 3:43 AM UTC

I would love to be more transparent and have accurate data provided to the public, but for Brightscope to make it look like I have no professional designations unless I paid them $95 per month was a little underhanded, in my opinion. I will try to get accurate information posted now that it won’t cost more than my financial planning software.

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Grant Barger said:

December 13, 2013 — 6:42 AM UTC

SCW,
I see your point… There is certainly a great disparity between the number of Advisors who are taking advantage of owning their own Advisor Alpha and those who feel they are in a price war for same-services. I hope the number is more than one or two percent of all Wealth Advisors. I’m not sure what that number might be… I do know this; Clients that come to an Advisor based on price will leave for the same reason. We should talk…you can find my info on Twitter @TangibleAlpha Thanks for sharing your thoughts.

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Stephen Winks said:

December 13, 2013 — 4:05 PM UTC

Brass Monkey,

I have no economic interest in Brightscope, but am one of its many admirers. Brightscope or something like it is part the maturing of the advisory services industry that is emerging from a commission sales culture that is serious about professional duties and standing. What is wrong about articulating the depth and breadth of the advisors counsel establishing accountability and measuring effectiveness? It requires the entire industry to compete on the basis technical competency and transparency. Importantly, the industry will gravitate toward a minimum threshold of counsel that is greatly elevated from today where brokers neither acknowledge they even render advice nor have any ongoing responsibility to act in the consumer’s best interest.

SCW

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Randy Wall said:

December 13, 2013 — 5:04 PM UTC

My problem with the site is incomplete data, and me having to pay a LOT of money for the privilege of making their data accurate.

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brass monkey said:

December 16, 2013 — 10:29 PM UTC

The company was started by brokers. By the looks of their history in our profession, I prefer not to have them serve as our advocates. Their business model has changed and changed and changed and if history is any indication…it will continue to change IF they are so fortunate as to stay in business.

Their hardline approach with advisers on the corporate data side (401k) and now the firm level/individual data side leaves much to be desired. They portray this image of being this wonderful advocate for the consumer, but that is not the way they treat advisers when trying to sell them on one of their many “products”. Classic boiler-room techniques are used and their sales tactics have “broker” written all over them. And now this latest two year maelstrom. Old hat.

In my opinion (which I am entitled to), they are the masters of subterfuge and marketing. I believe you need to research the other options available to the public and advisers before jumping on the BrightScope bandwagon, but to each his own. Best of luck to you Mr. Winks.

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Ev Conrad said:

December 18, 2013 — 4:59 AM UTC

RE: 'hinting about future collaboration with fellow data tracker Morningstar. For example, Brightscope may assist advisors in building portfolios using input from the Chicago giant.'

Very interesting, especially when as mentors as part of a startup incubator I was going through these guys told me that portfolio analysis for the small advisor was a 'bad idea’. I also told them that to fund it, I was scraping the IARD site for advisor data to sell to brokers. Admittedly they changed up the business model, but soon after they started doing this. Felt I had to comment, since these guys at the time were just scraping 401K plan data and said that my focus on small advisor portfolios was a bad idea. It may well be, but interesting to see that they don’t think that it is that bad after all…

I’ve come back to these items as part of my upcoming 'Advisor Workbench’ project and may decide to have similar offerings, albeit the portfolio stuff is a ways off, since getting good data from custodians is real work. Since I can also scrape FINRA BrokerCheck data and the IARD site I can repackage (without vetting) advisor data and let advisors updated it for little or nothing (< $20 / month). Stay tuned!


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