More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
BrightScope, an independent rating firm of 401(k) plans, announced Tuesday it had launched a background check service for the public to gain insight into the compliance history and performance of the nation’s registered brokers and advisors.
The site has 450,000 listings in its database so far, and includes information about customer complaints, judgments and terminations. Mike Alfred, co-founder and CEO of BrightScope, says the platform will eventually include advisor performance and fees, and will expand to include state registered insurance agents as well.
“This is a big step forward for the public when it comes to transparency in the financial services space,” Alfred says. “It will look like night and day in six months when compared with what we’ve released today. We eventually plan to add customer reviews as well, but they will be rigorous in their documentation, not just some advisor slamming his competitor.”
When asked if the new service is supposed to compete with similar databases compiled by the SEC and FINRA and offered to the public, Alfred responded with an emphatic “no,” and noted the regulatory agencies had done a notoriously bad job in offering background checks and red flags on advisors to the general public.
“FINRA is good at setting a standard and enforcing a sanction, but they are terrible at providing transparency to investors," he says. “I’m not embarrassed at all to say this, which I say to them directly. They are more interested in protecting their member firms than they are at acting in the best interest of investors.”
Alfred is most interested in adding advisor performance information across all firms to the database.
“This is one of the most important measures of an advisor’s competency, and yet [FINRA and the SEC] completely abdicate their responsibilities on this issue,” Alfred says. “This service is about clearly disclosing as much information as possible to the public to help them decide on an advisor to hire. It’s about filling in the informational gaps that currently exist.”
FINRA spokesperson Nancy Condon had no commment when asked to respond to Alfred's comments.