After growth dip, BrightScope takes a whirl at mutual fund data -- but in a way that Morningstar claims it bypassed

Brooke’s Note: What you have to like about BrightScope is how it takes a free enterprise approach in using largely government-derived information. At least that’s the theory. The SEC and the Labor Department feel responsible for extracting data from financial firms, plan sponsors and the like. They take next to no responsibility for making sure it’s accessible, massaged or put into any meaningful context for investors — or even advice professionals who would like to use the information as leverage to introduce a better service to investors. The 401(k) plans in this country are basically built out of mutual funds. It makes sense that BrightScope might want to take a more head-on approach with this product category than it has up until now. Of course, that takes it onto the turf of the biggest, most experienced data companies in the financial industry, like Morningstar. And that’s where things get interesting.

BrightScope Inc. is encroaching on Morningstar’s turf but with its own retirement-minded ground game.

The La Jolla, Calif.-based 401(k) tracker is putting mutual fund data on the public portion of its website — in contrast to Morningstar Inc., the Chicago data and investing giant, that typically puts such information behind its paywall.

On Tuesday, BrightScope launched Fund Pages, which provides inflow and outflow information. But in addition, and again unlike Morningstar, it will list the retirement plans that are most heavily invested in each mutual fund.

Which retirement plans are invested in which funds is important information that’s not been available to advisors for free before, says Jason Roberts, chief executive officer of Pension Resource Institute LLC.

“I think advisors will use that data because they can tell a plan sponsor that they may be holding a fund that is problematic. I can’t tell you how surprised I am about large employers who still don’t have a real advisor. Here, an advisor can reach out to plan sponsors and tell them that they think a fund should be replaced because it isn’t doing well. This could be a great prospecting tool.” See: Brightscope lets advisors get basic entry to its Advisor Pages for free, talks Morningstar deal and pencils in an IPO for about 2017.

Distinguishing feature

Mike Alfred [with brother and partner
Ryan]: There’s no other platform where
advisors can identify the funds they
use.

BrightScope’s new offering is a scorecard laying out each fund’s flows, manager turnover, fees and additional information, says Brightscope co-founder and chief executive, Mike Alfred.

Free or not, Rick Meigs, founder of 401khelpcenter.com in Portland, Ore., wonders if Brightscope can make a dent in the crowded field of mutual fund data where everyone from Lipper to Yahoo Finance is dispensing information.

“Because there are many high-quality mutual fund data sources currently available, I’m not sure of the information gap that this offering is intended to fill.”

Yet Meigs acknowledges that it may be enticing, especially one aspect of it: “Maybe the most fascinating part is the integration of specific retirement plan data with the mutual fund data,” he adds. See: Legal analysis: Why the Yale 401(k) letters, limits aside, should raise an alarm to plan sponsors.

Aging info

Morningstar provides free fund flow information via a monthly press release as well as data on more than 200,000 funds. In addition to specific funds, Morningstar looks at 180 fund families in a section it calls The Parent Pillar, says spokeswoman Alexa Auerbach.

Morningstar considered, but ultimately rejected, launching a retirement plan database because the government filings are old and “too inconsistent,” Auerbach says.

“The data was often incomplete or outdated. If you look on the BrightScope site you’ll see that the most recent data available is from 2013, for example, and only one or two funds are listed among the investment options for many plans. We’ll continue to investigate the possibility,” she says. See: Morningstar explains its new forward-looking rating system — and tosses in some hot fund picks for good measure.

BrightScope relies on public data for its site for the most part and it can be anywhere from nine months to twenty-one months old. The current data on his firm’s website is from the end of 2013 — making it 18 months old and that data will be updated this fall. He adds that BrightScope offers more timely data through its Beacon product for paying clients. See: With inflation on a tear, 401(k) plans look vulnerable and BrightScope publishes a cheat sheet.

IPO run-up?

RIAs featured on Brightscope’s new Fund
Pages.

The 2007 startup first made waves when it began rating 401(k) plans. It ruffled more feathers in 2011 when it set up AdvisorPages, an RIA rater. See: BrightScope sticks to its guns as it responds to outspoken critics of its Advisor Pages.

The Alfred’s latest broadside comes amid their continuing bid to achieve the kind of growth conducive to an IPO filing.

“The revenue growth has slowed down from last four or five years,” says Mike Alfred. “We’re still growing and we think in the back half of the year it’ll accelerate due to fund pages as well as other products. We’re still growing but not growing as fast. I’m impatient and I always want to grow faster.” See: How BrightScope plans to publicize RIA advisory fees fairly amid all those onion layers.

When asked about an IPO, he says: “It’s something we’d love to be able to do at some point but our focus right now is simply on building high-quality products and delivering results for clients. If we do that, we’ll have a lot of options.”

Advisor-oriented

Brightscope’s new product is currently free to users but will hopefully produce advertisement revenue dollars.

The product is also a marketing move for the company. “I made the comment jokingly but if all we build is a really cool tool that journalists want to use for research than we’ll view it as a success,” Alfred says. “If a fund is having problems, then they can see which retirement plans are largely exposed to that fund.”

As for Morningstar, Brightscope’s chief competitor, he says: “We admire Morningstar and the goal isn’t to take them on head to head. We want to be different. They own the consumer mindshare with ratings and getting information out there. We think the opportunity is much more inside the industry with this data.” See: Morningstar throws more money — and loses one of its own — at keeping its stake in a Bloomberg-lite venture intact.

Alfred says advisors will be able to glean unique trends about a fund company. “Well break down fund managers into groups of families. So, there would be a page for Vanguard or a page for PIMCO and it is very different than what Morningstar does.”

Rick Meigs: I’m not sure of
the information gap that this offering
is intended to fill.

For its part, Morningstar is comfortable with its data-tracking measures. “We provide comprehensive data and analyst coverage across the investment universe to help investors, advisors, and plan sponsors make better investment decisions,” writes Auerbach in an e-mail. “We have more than 100 manager research analysts who provide ratings on about $8 trillion of U.S. investor assets, or approximately 70% of total investor assets in the United States.”

Advisors in the mix

One of Brightscope’s most valuable services, says Alfred, is linking a mutual fund with its largest retirement investor. “We can link funds to retirement plans and we can tell you who are the largest institutional holders in a fund. We’re giving advisors a different picture of the funds they work with. This is very valuable for advisors.” See: DC Current: Bob Reynolds spoke on retirement reform, but what he left unsaid was more interesting than the speech.

Advisors can make themselves available to prospective clients by signing in on the pages and indicating which funds they work with so that consumers can reach them with questions. Advisors can identify funds they manage on the BrightScope page without having to pay a fee to the firm.

“When the consumer is doing research in a certain geographic area, they’ll see advisors in that area who will say they use that fund for a significant part of their work. This will make it much more social,” says Alfred.

“The interaction with advisors will be highly unique. There’s no other platform where advisors can identify the funds they use and interact with wholesalers who are representing wholesalers and interact with consumers.” See: 10 fund wholesalers and executives offer views about how they seek to add value for RIAs.