Company slams SEC as obstructionist

May 5, 2011 — 2:52 PM UTC by Lisa Shidler

8 Comments

Under fire for inaccuracies in the content of its massive new Advisor Pages database, BrightScope says it will allow advisors to make some basic changes in their listings for free. It has also used a blog post on its web site to sharply criticize the SEC and FINRA, saying that problems in the database stem from regulators’ deliberate moves to block public use of the government data.

“People weren’t attacking our data, they’re attacking the SEC’s,” said Ryan Alfred, co-founder of the La Jolla, Calif.,-based company, in an interview Both the SEC and FINRA refused to comment on BrightScope’s accusations.

The SEC comes in for plenty of criticism from advisors, but BrightScope’s criticism of the government’s database is new. That may be because no one has attempted to collect huge chunks of the data from it in the past for public posting.

The SEC’s website certainly allows consumers to access information about any SEC-registered investment advisory firm including the firm’s phone number, address, assets under management, types of clients and disciplinary action, says David G. Tittsworth, executive director of the Washington-based Investment Adviser Association.

“The Investment Adviser Registration Depository — the SEC’s database for investment advisers … (has) been up and running for more than a decade and provides a significant amount of information to anyone who has Internet access,” he says in an e-mail. “There’s rarely a day that goes by that I do not use IARD. I’ve always found it to be user-friendly.”

Massive effort

BrightScope’s new database contains public information about 430,000 advisors; for a $250 monthly subscription, advisory firms can add marketing information to their listings. See: BrightScope’s huge advisor database is first search-engine friendly way to connect consumers, advisors.

A storm of criticism has developed around BrightScope’s effort in the past week, with advisors saying the information is incomplete or doesn’t reflect their businesses; and BrightScope saying that it’s working fast to complete the database and that problems with the data stem from the bifurcated regulatory structure and advisors’ mistakes in filings. See: BrightScope sticks to its guns as it responds to outspoken critics of its Advisor Pages.

“What is shown is a disgrace in my opinion,” says advisor George Papadopoulos, a fee-only advisor in Novi, Mich., in an e-mail. “They really show nothing at all. They can not even get my designations to show correctly – CPA, PFS, CFP should be in caps of course.”

For BrightScope’s part, Alfred says that the company is trying to be quite responsive to advisors’ concerns and correct information promptly.
Alfred said in the blog posting that while BrightScope is not guaranteeing the accuracy of its information, it has not yet come across a case where information that is accurate on the SEC’s site is inaccurate on BrightScope’s.

“We were able to show that in the vast majority of cases the data integrity issues raised by the advisors were actually cases where the advisor was either unfamiliar with their own public filings or made a mistake in their filing,” Alfred wrote in the post.

Alfred says the company is working with more than 75 advisory firms to develop a methodology for describing assets under management and will allow advisors to update their assets under management for free. He says in the blog post that the company hopes to announce this new program in a few weeks. The information that Alfred says advisors can update for free would be basic facts such as their assets under management and client type. Advisors will still need to pay to items such as pictures and more details about themselves or the firm.

Fast action

“We understand these concerns and are very sensitive to them,” Alfred says in blog post. “This is the type of fast action and responsiveness that the private market can support that can’t be matched by the government.”

See: How BrightScope is using technology to create order in a messy 401(k) market.

In the blog post, he said that many advisors are upset about the AUM listed simply because they don’t agree with the government’s calculations. BrightScope also uses firm data rather than the individual advisor data, which it says can also lead to inaccuracies.

“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.”

Regulators’ data blockades

“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,” Alfred wrote. “(It is worth noting that the collection, disclosure, and ‘defense’ of the disclosed data is paid for with taxpayer dollars.)”

Alfred says he hasn’t had conversations with the government officials but hopes to have detailed discussion with them in the near future.
Alfred says the SEC employs expensive private market solutions as counter-measures to prevent access to advisor data. For instance, he says if someone were to search for too many advisors on the site, that person would no longer be allowed access.

Likewise, it’s difficult for a company like his to collect large data because of filters from the SEC and FINRA.

“You can only use this data in one particular way and they’ll actively prevent you from using it any other way,” he says.

To avoid the SEC and FINRA hurdles, BrightScope often gathers its data from the states, which he concedes adds an extra layer of bureaucracy to getting this information. He says the company is also working on ways to reduce the lag time between filing and updating the pages.

Alfred says that if the SEC complies with the recent Presidential Memorandum on Regulatory Transparency the data may be easier to assess.
Information was also incorrect about Jennifer Cray, CFP of Investor’s Capital Management, LLC in Menlo Park, Calif.

Inaccuracies?

“I took a look at my Brightscope entry a few days back, and it said I was dual registered. This is a major problem in that I am a fee-only planner and am not FINRA registered,” she says.

She said when she e-mailed the firm they told her that they’re working to add an active/inactive indicator for FINRA registration.
“I can’t believe they would launch the site without noting inactive FINRA registrations,” she says. But she points out that the company has corrected her information.

Meanwhile, advisor Donald L. Purtill, of Purtill Financial LLC with offices in Ohio and Florida, says virtually none of his information is even listed on the site. Currently, just the firm’s employees are listed, and the assets under management is blank.

“The government’s records are fine,” he says. “They have all of the right information and anyone can see it. There’s nothing inaccurate or incomplete about the government’s documents. The problem is they haven’t downloaded it completely.”

He says the ADV form showing his assets at $32 million is accurate. Alfred says the reason Purtill’s data is incomplete is because the data is still being loaded into the website.

He points out that he’s heard from many advisors who aren’t yet in the database. He says there are a lot of FINRA registered representatives who simply aren’t in the database, and they hope to fix that issue in the coming months.


Mentioned in this article:

BrightScope, Inc.
Data and ratings for RIAs



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

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CPA Wallace said:

May 5, 2011 — 5:55 PM UTC

Previously I recommended we file complaints with the SEC, FINRA, and the FTC against BrightScope for their erroneous data and unsavory business practices. Even with these recent positive developments, I continue to recommend these actions. Here why: First, the House Financial Services Subcommittee on Capital Markets is reviewing the 2012 SEC budget as we speak and it isn’t pretty. The SEC & FINRA do not have the room in their budgets to deal with profiteers like BrightScope; and if additional companies [like BRIGHTSCOPE] put totally unnecessary demands on them it will distract them from their mission. The tax payers shouldn’t be helping the BrightScopes and the Alfreds when better data exists at the source. Second , it turns out that a case can be made for regulatory oversight of BrightScope by the FTC. The old Gramm Leach Bliley gave the FTC authority over certain financial service firms not regulated by FINRA, SEC, OCC, and the FED; for example, non-bank mortgage lenders, real estate appraisers and in this case 401k appraisers like BrightScope. We know the data is bad but the consumers do not. File a complaint with the FTC.

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B. said:

May 6, 2011 — 1:31 PM UTC

I have a serious issue with the fact that they show FIRM assets as opposed to ADVISOR assets. They are making a big deal about comparing different advisors, but when you put my firm up against an advisor from, say, Merrill Lynch or Smith Barney, we don’t even compare – even if that advisor has only $10mm AUM, since it will show their entire firm’s assets. So if my firm has $150mm AUM, it makes us look insignificant compared to someone that could potentially just be a rookie.

I am not saying the data is factually inaccurate. But the context of the data being used will lead to some serious misinterpretation by potential clients. I think their heart is in the right place, and I think it COULD be a valuable service. But simply making your case that the “data is factually correct” does not dismiss the fact that the way the SEC presents their data can be terribly misleading to potential clients. Sure, prospects can go to the SEC site on their own and get the same info, and come to the same conclusions. But most don’t. SEC data should not be the first place someone goes for info on an advisor or firm. I think this is completely backwards.

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JM said:

May 9, 2011 — 3:25 PM UTC

I find it interesting the BrightScope guys have no problem posting correct and/or incorrect U4 info on everyone in their industry, yet I don’t believe I have seen their U4 or background information posted along with the rest of us. A old saying comes to mind, “those living in glass houses should not throw rocks”.

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Tide Goes Out said:

May 10, 2011 — 7:52 PM UTC

Nice follow up article Ms. Shidler. You attempted to get to the bottom of the maelstrom, but it looks like the answers provided were par for the “non-disclosure” course over at Brightscope.

I don’t know where to start after reading this, but I’ll try my best. So here goes:

1. I think Ryan Alfred is confused. People are attacking his data, not the SEC’s! What planet do these guys live on? All an adviser has to do to fix the SEC data is login to the CRD or IARD system and fix it. A few minutes later, the data would show as corrected, in a publicly available database. There is no such avenue with Brightscope unless, OF COURSE, you pay them.

2. So which one is it, $100 per month or $250 per month? What do you get for that money? A work in progress??? No thanks.

3. So Mr. Alfred per his blog post “is not guaranteeing the accuracy of its information”? Well isn’t that nice to know. And we should pay for this guarantee?

4. He goes on to state that they are working with 75 firms to “develop a methodology”? Isn’t that called beta testing? How can you go to a market with an un-built platform? How can someone be expected to pay for something that’s not even built yet? Oh wait, that’s par for the course as that is how they run the 401k side of the business as well.

5. Another interesting point that others have brought up here is the AUM issue- firm versus individual? How does their system know how much an individual is managing, if we are only required to report this on a firm level? So let’s say a firm has $1B AUM and 10 advisers, this would be allocated at $1B per adviser or $100MM per adviser? Mind you, can any of these numbers ever be considered correct?

6. Mr. Alfred says he has yet to have discussions with government officials (SEC or FINRA) about the dissemination of data they would like to see (so they can profit mightily and with less work on their part I might add). Let’s hope this doesn’t end the same way it did with the DOL spending $100K to meet their demands per Mike Alfred’s comments shared here: “Brightscope Sticks to its guns…” – http://www.riabiz.com/a/6445159.

7. Your article goes on to point out more inaccuracies of adviser data which, OF COURSE, are not Brightscope’s fault. At the end of the article it states that Mr. Alfred has “heard from many advisors who aren’t yet in the database. He says there are a lot of FINRA registered representatives who simply aren’t in the database, and they hope to fix that issue in the coming months.” So once again, you have rushed to market without a built platform? The coming months? Adviser data is obviously still missing and incorrect. I’m skeptical as to when and if this data will ever be corrected or input if the adviser or firm does not pay up.

What this reminds me of is the initial launch of their 401k platform. Let’s look at the history up to today:

• Brightscope launches a 401k “benchmarking” site.

• They come up with ways to sell that data to the public, plan sponsors, and plan advisers (nothing wrong with this, but be fair and equitable and don’t constantly change your product, market, business plan, etc…).

• They never really disclose these pricing schedules to the public as they change with the “size of the fish on the line”.

• Unable to profit off of their 401k database, they start including click-through ads on their pages to turn a profit.

• They create several different databases like “plan dashboard”, “beacon”, and “spyglass” (last two named after condos or golf courses?) with more “black box” pricing and promises. The 401k databases continue to be a work in progress to this day as they continue to change and morph into whatever the next “big idea” is.

• They then switch gears once again and decide to focus on advisers and disclosing their information. An odd dichotomy in and of itself in that the two gentlemen running the company (Michael and Ryan Alfred) weren’t exactly pillars of the adviser community when they tried to take a shot at it.

To this day their website clearly states that their mission and focus was to serve the 401k and retirement community. The board is even somewhat reflective of that. Boy has that changed. Now they include a paragraph about “wealth management” in their “About Us” section. I don’t understand how these two have been able to pull the wool over so many industry and media stalwarts with their half-baked business plans. In my opinion, one would be wise to steer clear of this company and their business practices.

There are much more proven and efficient ways to ascertain your data then through this company and here is a short list for your convenience:

SEC Adviser and Firm search: http://www.adviserinfo.sec.gov/%28S%28llcx3s1aqfvri3ml00r2vqbi%29%29/IAPD/Content/Search/iapd_Search.aspx

FINRA Broker and Firm search: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/
For advisers:

DOL Form 5500 searches (for plain, raw 401k plan data): http://www.efast.dol.gov/portal/app/disseminate?execution=e1s1

To research plans for different areas and search various fields of 401k plan data at fair and disclosed pricing schedules:

Larkspur Data: Datamaster Pro – http://www.larkspurdata.com/dmp1.html

Judy Diamond: http://www.judydiamond.com/pension.html

To benchmark 401k plans at fair and disclosed pricing schedules: http://www.fiduciarybenchmarks.com/

If you would like to advertise as an adviser with “already built” platforms:

Paladin Registry: http://www.paladinregistry.com/ (everything regarding this business is publicly disclosed on this website, unlike the Brightscope “black box” we are supposed to buy into)

Wiser Adviser: http://www.wiseradvisor.com/

Good luck advisers and remember to always run a complete and thorough due diligence on your vendors prior to utilizing their services.

And, once again, I leave the Alfred’s with a quote from Mr. Buffet, “Only when the TIDE GOES OUT do you discover who’s been swimming naked.”

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CFA Wallace said:

May 10, 2011 — 9:26 PM UTC

Thanks for your work Tide Goes Out. . What is disturbing is that no investor will ever know if their advisor is the next Madoff because Brightscope’s data is absolutely terrible and untimely. They received a data dump from FINRA and the SEC and are incapable of parsing it correctly and are not integrated for live updates so they are just shamelessly blaming the SEC & FINRA. The best and most timely data available to the investor is from the source: the SEC and FINRA.

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Rich and Co. said:

May 22, 2011 — 4:26 PM UTC

Here are some new blog posts on BScope principal’s past troubles and the media’s reluctance to address them. There are some good comments submitted as well:

- “Retirement’s Frankenstein: BrightScope is a Symptom – Not the Problem” – http://wp.me/pXvvI-7l

- “Why Is Industry Press Looking Away on BrightScope Principal’s Past FINRA Violations?” — http://wp.me/pXvvI-6o

Our Conclusion: The main lesson is that the retirement community cannot depend on the current industry media for problem-solving, critcal reporting, or concern for ethical problems. Serving advertisers, PR campaigns and the status quo are their priorities. This is understandable and predicatable. However, we in the community must engage in self-regulation and doing our own research.

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SMS said:

July 29, 2011 — 2:37 AM UTC

ERISA Red Book Online by PensionPlanet.com has long been an industry standard for unbiased Qualified Plan marketing and research. Supplemeted with Dun & Bradstreet marketing data, this robust search and reporting application allows users to query over 1.4 million 5500 filings by over 75 fields including geography, plan type, plan assets, total participants, and specific service providers including RIA’s. You can find the app here: http://www.pensionplanet.com/Products/ERISARedBookONLINE/tabid/84/language/en-US/Default.aspx

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Peter mafteiu said:

December 14, 2013 — 5:37 PM UTC

Garbage in, garbage out. I do not believe an IAR really gets the whole exporting deal for a registered adviser. Sets are of the firm, period. There is no mechanism in regulatory reporting to indicate the aum of an individual IAR. One exception is if the IAR is a sole proprietor RIA. Then the aum can be attributed to the individual. Currently in a form adv this is the only way to correlate aum to an individual. Also, if a person is an IAR of a RIA firm and also an IAR of a Dually registered bd and ia, again there is no way to assign aum from both entities to an individual. Bottom Lin? If you pay to update data on this system realize you are responsible as the database information is your responsibility and is an advertisement. Period. Good luck.


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