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Brightscope to launch Yelp-like reviews, putting advisors under the consumer microscope

The iconoclastic Alfred brothers' latest innovation will give clients a voice - but experts and advisors fear compliance complications

Monday, October 3, 2011 – 4:38 AM by Lisa Shidler
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Mike Alfred: Reviews will be in line with the spirit of [compliance regulations] if not in line with the antiquated letter of the law, which was written long before the era of social media.

The company that raised industry hackles when it introduced ratings of RIAs based on government data last spring is now preparing to give consumers a forum to sound off about their financial advisors.

BrightScope, Inc., which provides background on 450,000 advisors based on reports from the Securities and Exchange Commission and FINRA, is adding a section to its Advisor Pages that will let consumers write reviews about advisors – a concept akin to popular consumer websites like Yelp or Tripadvisor.com. See: BrightScope’s huge advisor database is first search-engine friendly way to connect consumers, advisors.

The firm hopes to integrate the section into Advisor Pages by the end of this year.

The La Jolla, Calif.-based data tracker’s launch of Advisor Pages back in April set off a minor firestorm of controversy that even caught the attention of The New York Times in an article .

But Mike Alfred, who, with brother Ryan, is a co-founder of Brightscope, says the original rating product has been so successful the company is taking this next step.

“People want this information,” Alfred says. “We want to help real clients share their experiences working with advisors so that clients know what it’s like to work with that advisor. [Consumer reviews are] nothing new but it’s never been done well in the advisory space. Yelp is great for finding a Chinese restaurant but it’s not a good platform for leaving useful information about an advisor.” (See: BrightScope sticks to its guns as it responds to outspoken critics of its Advisor Pages)

Rick Kahler: I buy all sorts of services today off the web based on user feedback. Why should the financial services and financial planning professions be excluded?
Rick Kahler: I buy all sorts
of services today off the web
based on user feedback. Why should
the financial services and financial planning
professions be excluded?

Shining a light

Some advisors’ first-blush reaction to Brightscope’s latest effort has been decidedly positive.

“This is a good thing,” says advisor Rick Kahler of the Kahler Financial Group in Rapid City, SD, whose RIA manages more than $120 million. “I buy all sorts of services today off the web based on user feedback. Why should the financial services and financial planning professions be excluded? In a market-driven economy, the consumer is king.”

Advisor Tom Duffy, who provides fee-only planning at Jersey Shore Financial Advisors LLC, also likes the concept.

“The best thing for our profession is to shine some light into the dark dirty corners,” he says. “Expose the high-fee, low-return advice that’s been given.”

Stricter scrutiny

But compliance experts and advisors question whether this portion of the site could cause major compliance headaches – especially since RIAs are not allowed to use testimonials under the Investment Advisers Act of 1940. See: 10 top ways to use social media without courting regulatory trouble.

“I think writing reviews is a great idea,” says Robert Siegmann, chief operating officer and senior advisor with Financial Management Group. “But I think writing reviews like Yelp on the advisors website will be seen as testimonials.”

Kenneth Kaltman: Regulators in the states are going to start looking at these sites and they'll look hard at them. This could be misleading and could be harmful to advisors.
Kenneth Kaltman: Regulators in the states
are going to start looking at
these sites and they’ll look hard
at them. This could be misleading
and could be harmful to advisors.

Cincinnati-based Financial Management Group manages nearly $200 million in assets.

“To me, it’s just opening the advisor to a little more scrutiny from regulators and advisors have got to be careful about what goes on the site – especially if they subscribe to it,” says Ken Kaltman, chief operating officer of National Compliance Services, Inc. .

Brightscope charges individual advisors and firms who want to update their pages with pictures, blogs and additional information from $100 to $250 a month.

Kaltman says regulators tend to spend a great deal of time on the Internet researching advisors – including going to their homepages, Facebook and LinkedIn. If this portion of Advisor Pages is successful, it may mean that regulators will start investigating it to ensure no violations are occurring.

“Regulators in the states are going to start looking at these sites and they’ll look hard at them,” he says. “This could be misleading and could be harmful to advisors.”

Too much of a good thing?

While getting positive reviews is a delight, Jennifer Cray, an advisor with Investors Capital Management LLC, is afraid such testimonials might cause more compliance burdens. For instance, when Cray uses LinkedIn, she needs to remove any positive recommendations so as not to get pinged for testimonials.

Jennifer Cray: The burden needs to be on Brightscope to make sure their service doesn't create compliance problems for advisors. We have enough compliance headaches as is.
Jennifer Cray: The burden needs to
be on Brightscope to make sure
their service doesn’t create compliance problems
for advisors. We have enough compliance
headaches as is.

“I do believe that consumers should be allowed to post their opinions publicly about any product or service they use,” says Cray. “[But] the burden needs to be on Brightscope to make sure their service doesn’t create compliance problems for advisors. We have enough compliance headaches as is.”

Investors Capital Management is based in Menlo Park, Calif. and manages $167 million in assets.

Calming compliance officers

Alfred agrees that his company must address these compliance issues and understands that testimonials are a compliance issue for RIAs more so than for brokers.

“The way we intend to structure customer reviews will be in line with the spirit of the Investment Advisers Act and the DALBAR No-Action letter, even if not in line with the antiquated letter of the law, which was written long before the era of social media,” he says.

Alfred believes most compliance officers will agree with his company’s point of view, but says they are also considering pursuing an SEC No-Action letter specifically on the issue of customer reviews to get more “risk-adverse compliance officers comfortable with the idea.”

“The compliance paradigm needs to shift and it will with time,” he says.

Bumpy launch

Alfred is tight-lipped about major details regarding Advisor Pages because he feels potential competitors are already working on similar projects. Right now, BrightScope is the only firm rating advisors. Alfred declines to disclose the traffic on the BrightScope website, but says it has, at times, quadrupled since Advisor Pages was launched in April.

Earlier this year, Morningstar president Joe Mansueto said his company was considering rating advisors. But in an e-mail last week, a spokesman said the firm has no immediate plans to do so. See: Morningstar’s Mansueto views next horizon: rating RIAs.

The launch Advisor Pages was a bumpy one, with advisors complaining of inaccurate information. Alfred says those complaints died down after the first week and interest has remained strong in these pages.

“It’s clear people are interested in this kind of information,” he says.

Getting it right

As Brightscope prepares to unveil the new consumer comment section, Alfred says there are still many details to be worked out.

He says his firm has learned lessons from sites in other industries and intends to put a screening mechanism in place to prohibit advisors from writing glowing reports about their own practices. Alfred also says advisors will not be allowed to remove positive or negative reviews.

There are also plans in place to ensure that the reviews come from real-life clients. Alfred says it’s likely that clients will have to answer a series of questions, such as how long they have worked with the advisor, before posting comments.

“The details are still being worked on,” Alfred says. “We’re highly confident that the review will be from an actual customer.” Inappropriate comments will be removed, he says.

Advisor Pages will also offer a Q&A section where advisors will have an opportunity to answer questions from consumers about financial planning topics such 401(k) plans and estate planning.

Alfred says this is an excellent opportunity for advisors to market themselves as well and to build credibility by answering questions and even posting blogs.


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Mentioned in this article:

Morningstar, Inc.
TAMP
Top Executive: Joe Mansueto

BrightScope, Inc.
Data and ratings for RIAs




actual advisor

actual advisor

October 4, 2011 — 3:04 AM

Neither companies, nor advisors can respond to anything a client posts. It’s called confidentiality. There will be no discussion about any client, period. There cannot and will not be any specific two way communication using Social Media. Competitors can post negative comments about other advisors. Same as disgruntled clients. Who will regulate that?

This could be as bad as company employees posting bogus reviews on Amazon.com. Happens all of the time, except we’re not talking about TVs.

This is reckless and unethical. Referrals come from positive recommendations, not negative. Even when a referral calls my office, I cannot discuss any details about the 'referring’ client. The 'power of the Internet’ will help investors, but not this way.

This is one more attempt to generate page views. i can’t imagine how they are going to make money. Tick, tock…tick, tock….

Mike Byrnes

Mike Byrnes

October 3, 2011 — 5:33 PM

When do you think regulators will change their rules on “testimonials”?

Current client feedback is essential in today’s decision making process, proven in client referrals usually being the number one source for new business (by far).

Let the power of the internet help advisors and clients!

Mike Byrnes, President
Byrnes Consulting, LLC
http://byrnesconsulting.com/
http://twitter.com/ByrnesConsultin

rob s

rob s

October 4, 2011 — 1:59 AM

You must allow all reviews, negative and positive. Those companies looking to stay in business must be monitoring for all reviews and respond publicly. Social media has forever opened the medium for businesses to be open with consumers, with a two way authentic communication.

You could create reviews on articles without an RIA knowing. How will the SEC treat this? I’m interested to know the history, or the root of today’s testimonial rules. Anybody know?

Elmer Rich III

Elmer Rich III

October 5, 2011 — 12:30 AM

Harvard BUsiness Review of Yelp — does this model apply to advisors? Probably not. http://hbswk.hbs.edu/item/6833.html

Elmer Rich III

Elmer Rich III

October 4, 2011 — 5:34 PM

The BScope brothers are quite clever and misleading — a strategy that usually works, for awhile.

- So they tout themselves are the best friend of the advisor and they do this aggressively with
the media — who buys it hook, line and fishing pole.

- But everything they do attacks advisor’s businesses and integrity

- In fact, what they do is always poorly conceived, mismanaged and threatenting to advisors

- Then they demand money from advisors to fix BScope’s own mistakes and bad data that threaten an advisor’s image and business.

They package all this in the warm fuzzy package of “transparency” and “helping”. Even the NYT bought this silly story.

Clever, deeply dishonest, but clever.

Elmer Rich III

Elmer Rich III

October 4, 2011 — 3:54 PM

Then what about libel? Can an advisor risk their business by not suing for libel? Is BScope then culpable as well?

The idea of taking consumer web tactics and applying to a heavily regulated business is remarkably unintelligent and typical for BScope.

If a positive review is posted does it need to be investigated by the SEC?

Larry Steinberg

Larry Steinberg

October 5, 2011 — 1:41 AM

Is this service going to be like the other Brightscope services, where if you pay them $100 or more, you get to choose what is said about you? I am extremely skeptical to say the least.

Elmer Rich III

Elmer Rich III

October 6, 2011 — 9:37 PM

What would be the most accurate way to do this? Just the straightforward matter of accuracy is very complex in social media — and life.

John Deshevel

John Deshevel

October 6, 2011 — 8:57 PM

Personally, I had a bad experience with an advisor who was more interested in pushing me into risky investments rather than helping me manage my finances. I would welcome a venue where clients could provide honest feedback on their advisor. Yelp is great if you want to eat, but this is people’s life savings we’re talking about here, not a dinner date. That makes it ever more important to know what you’re getting into with an advisor before signing on the dotted line.

Elmer Rich III

Elmer Rich III

October 7, 2011 — 8:44 PM

Over in the retirement markets, that’s what we/ve experienced with BScope. Bad data, misleading claims, irresponsible business practices all around.

Shawn Tierney, Founder/CEO

Shawn Tierney, Founder/CEO

October 12, 2011 — 3:13 PM

The issue at hand is to make sure that the questions

Shawn Tierney, Founder/CEO financialJoe.com

Shawn Tierney, Founder/CEO financialJoe.com

October 12, 2011 — 3:26 PM

The issue at hand is to make sure the rating/review questions are service based and not market performance based which we all know will fluctuate and continually sway an investor.

Financialjoe determined there had to be something the great advisors were doing to stand out from the others. What was revealed through the survey is that it had nothing to do with market performance; which comes and goes – but everything to do with service and relationship; which should always be there.

Financialjoe went to great depth creating our advisor rating questionnaire with five seasoned advisors and a few of their best clients. Through that process they developed 12 simple questions created by both the advisor and investor stressing the reasons that their relationship is so successful. The investors that created the questions along with the advisors also revealed that these are the reasons they have never left their financial advisor when market conditions were at their worst and their portfolios were taking a beating. The conclusion of the survey revealed to the advisors that if other financial advisors serviced their clients in accordance with our basic questions, there should never be an issue with a client. What’s even more amazing is that over the last month when other advisors read the questions the first thing out of their mouth is, “I’d better start calling clients I haven’t talked to in a while.”

Furthermore- we do not charge advisors to create their profile, upload their pictures, link their personal website, blog, facebook, twitter, or linked in accounts. Advisors control their information and may change it at any time; they own it.

We do offer additional services and are looking for advisors during our beta launch to participate, and in return receive a free one year “Joe-Pro” subscription for free. See our blog for further details. http://financialjoe.tumblr.com/

Kind Regards to all,

Shawn Tierney, Founder/CEO
financialJoe
www.financialjoe.com

Elmer Rich III

Elmer Rich III

October 12, 2011 — 3:45 PM

We do not share a sanguine view of social media usage for professional business matters — especially in highly regulated industries — especially where an advisor’s career and reputation can be permanently ruined with false claims and accusations.

Remember, the internet is forever. You cannot ever take back a false claim, nor remove it from Google — for the rest of your life. Likely no commercial entity can afford to fund fact-finding and moderation on these matters. This is why it is now provided, pretty efficiently, as a government utility.

Equating restaurant and consumer goods reviews with professionals and licensed professional services is a deeply flawed perception and claim — but likely profitable, short term.

Edward Jones

Edward Jones

October 15, 2011 — 1:40 AM

Anyone who was/is registered with a S65 are being picked up in their database even though they may never have worked as a financial advisor. No screening at all and rank and file brokers names being crawled all over Google. How does FTC feel about privacy issues…because you have a securities license, you’re fair game? Any other site removes your info if requested. This company profits from government data… hopefully not for long.

Elmer Rich III

Elmer Rich III

October 15, 2011 — 7:29 PM

Whether BScope or some other company does this, it is the nature of digital communications to dominate now and mistakes to occur. Bad data hurts everyone. This is a good matter for the new Consumer Protection Agency. Some attys could build a good career on handling this and advising the government, companies, etc.

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actual advisor

actual advisor

October 7, 2011 — 3:46 PM

Unfortunately, there is no way to ensure 'honest’ feedback. Even worse, a client’s perspective may be completely inaccurate. Can you imagine an arbitration meeting where the client/investor says, 'If you don’t refund my money, I’ll post what happened on Brightscope.” Do you really think the disgruntled client is going to post honest feedback?

I’ve read a few complaint letters in my time, and they aren’t exactly accurate. Anyone in our business would know that. This whole idea won’t work in the long run, but may hurt some people in the short term.

Elmer Rich III

Elmer Rich III

October 3, 2011 — 4:07 PM

This will be an interesting experiment. We seem to know from research:

- Negative and hostile-aggressive commentators dominate all social and digital media

- Our minds over-weigh negative information

- Negative reviews can build a business as much as positive

We are looking forward to this. Unfortunately, as with so much Mr. Alfred does, advisors will likely be harmed and perhaps seriously. Imagine the lawsuits! Plaintiff attorneys will be scouring these complaints to find new clients.

Advisors will have no recourse to any accusations, of course. But even responding to a false accusation is a loss for any advisors. It is a lose lose for advisors. So we can expect the most hostile-aggressive and unreasonable clients who blame everyone else for their mistakes to dominate this service.

Also, like Yelp has been found guilty of, the unethical will game the system. Yelp, promised good reviews to clients that signed up and bad ones to client’s that don’t. It’s an opportunity for a protection racquet.

Glad none of our clients will be effected, yet.

From a technical marketing case study POV, we look forward to seeing how this “train wreck” will play out.

Rick Johnson

Rick Johnson

October 3, 2011 — 3:45 PM

Is it just me? Or, do the Wells Fargo and Ameriprise television commercials skirt the testimonial issues for RIA’s? The Wells Fargo commercial clearly talks about financial planning and spells it out in their ad. The person depicted in the commercial is giving a testimonial on how Wells Fargo helped them all of their life. In my compliance mind, the fact that it is a fictitional bank customer makes little difference. The bottom line is that Wells Fargo is also a RIA firm who is using a testimonial in their ad.

Ameriprise has recently begun running commercials with Tommy Lee Jones. Again, I know he is an actor, but he is touting the benefits of Ameriprise who is also an RIA firm. This Ameriprise commercial clearly talks about financial planning and uses Mr. Jones as its testimonial.

Us peons down here in the real RIA world cannot skirt the rules like these big behemoth companies with deep pockets. If Brightscope wants to give us peons a little leg up, then so be it.

I thought the rules were if you hold yourself out as doing financial planning, then you are subject to the Investment Advisers Act of 1940. If so, then in my opinion, both Wells Fargo and Ameriprise are breaking the rules for testimonials.

Elmer Rich III

Elmer Rich III

October 10, 2011 — 7:20 PM

This is wrong:

- 2 young and inexperienced brothers

- With a U5 event already on their records from one of their 1st jobs in the industry

- That required a significant cash payment from each of them

- For deceiving a retirement client

- Who also have a bad reputation in the retirement industry for bad data, bad business practices and misrepresentation — all validated by in-depth discussions and fact-checking.

- Who would likely never be hired again in the financial services industry, because of the U5 event

- Have set themselves up as the arbiters of the personal, professional and career reputation

- For every financial advisors in the country

It is astounding that the media is not investigating this in-depth. Since the BScope bros hold the careers of every advisor in the country hostage on their site, shouldn’t there be some immediate in-depth forensic investigation of who these people are and their business practices – at a minimum? Beyond accepting PR and what they about themselves.

Where is the data to back up their claims? Have they even thought about safety measures to protect advisors – and investors? Why aren’t serious professional questions being asked?
Time for some simple fact-checking.

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