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July 30, 2013 at 09:44 AM
Independent registered rep David Sterling was infuriated last month when a BrightScope Advisor Pages salesman called to see if he wanted to pay a fee to manage the information on the Web page that describes Sterling’s business.
Until then, Sterling wasn’t aware that there was such a page. But when he checked it out, he discovered that anybody who looked him up on BrightScope would find a red mark against his name and a link to the Financial Industry Regulatory Authority’s BrokerCheck, where FINRA lists what Sterling believes is an out-of-date and irrelevant report on his long-resolved dispute with a contractor over payment on a kitchen remodeling job.
“For just under $1,000 per year I can subscribe to BrightScope so that I can have access to and edit information gathered about me. Of course, the gentleman went on to explain how valuable this option is to my business and branding. What a farce,” Sterling wrote in an complaint emailed to ThinkAdvisor.
But while advisors such as Sterling are upset about BrightScope’s sales methods and online business model, others in the advisor industry say that’s exactly how the website is supposed to work.
One such fan of BrightScope is Chip Roame, managing partner of industry consultant Tiburon Strategic Advisors, who calls BrightScope an innovative disruptor. “BrightScope will disrupt the advisor industry, and become a portal for advisor data,” said Roame when commenting on Michael Kitces’ decision in April to join BrightScope’s advisory board. Kitces, a partner with Pinnacle Advisory Group, publishes The Kitces Report financial planning blog and is a regular speaker at industry events. He also is a contriubtor to ThinkAdvisor.
Morningstar Is BrightScope’s Role Model
BrightScope officials, too, have argued the merits of online transparency since their launch of Advisor Pages two years ago, and they point to Morningstar as their role model.
BrightScope CEO and co-founder Mike Alfred said last week that he and his team of executives have engaged in regular discussions with officials at Morningstar for several years. Alfred described BrightScope as the Morningstar of financial distribution channels, because it intends to democratize information about advisors and 401(k) plans and make those markets more efficient.
“I think our business model is pretty much misunderstood,” Alfred said. “But we’ve seen how Morningstar has evolved since 1984. Although Morningstar had people screaming when it was new, the service that Morningstar offers today is huge. Morningstar drives real consumer decision-making, and now the asset managers have to be users of Morningstar because between 70% and 80% of the mutual funds that sell the most have Morningstar ratings of four or five stars. If you’re rated two stars, you’re probably not moving flows. That’s powerful.”
Alfred said his privately held company has almost 70 employees. Though he wouldn’t reveal BrightScope’s market cap or revenues, he said the firm has been cash flow positive for three straight years, with more than 60% revenue growth every year. He said the public website represents only 3% of what’s going on at BrightScope, at the very front end of the business, and the revenue is generated at the back end through software and data subscriptions sold to large asset managers, recordkeepers, large plan sponsors and financial advisory firms in the RIA, wirehouse and IBD channels.
When told of Sterling’s complaints, Alfred said his firm is building out additional functionality to benefit non-subscribers. “We’re trying to make it more inclusive so that advisors who don’t use the subscription service can still get something out of it,” he said in a phone interview.
