Advisers take dim view of BrightScope

BrightScope Inc.'s new free website, which allows investors to look up financial advisers, already has sparked controversy. A number of advisers claim that the firm is publishing incomplete information and charging them if they want to fix it. Last Tuesday, BrightScope launched Advisor Pages, which allows consumers to search for advisers according to a number of criteria, such as geographic region, assets under management and firm. The pages also include information on legal disputes and formal complaints. BrightScope aggregated the data by tapping public information from the Financial Industry Regulatory Authority Inc.'s BrokerCheck database and the Securities and Exchange Commission's investment adviser database. But some advisers said that their profiles are incorrect because BrightScope is relying on public information that is incomplete or in some cases out-of-date. Specifically, the advisers claim that their profiles understate their assets under management because ADVs filed with the SEC include assets under management only for registered investment advisers. This means that not all of the assets of dually registered advisers, known as hybrid advisers, are disclosed on the site, advisers said. BrightScope's site states that his firm has $12 million in assets under management. In a survey conducted last week by InvestmentNews, 84% of 205 advisers said that their assets under management weren't correct on the BrightScope site. According to BrightScope's site, Nancy Caton, an independent adviser with Raymond James Financial Services Inc., has $88 million in assets under management. But she said that she actually has assets under management of $189 million. Even Ms. Caton's RIA business has $104 million in assets under management, and that was in her latest ADV, filed March 31. “Prospective clients — particularly big ones — look at how much assets under management you have to see if you can handle their business,” she said. “It's important that this information is correct.” BrightScope's pages are based on ADV data as of the end of last year, and the firm said that it is updating that data.

CHARGING FOR CHANGE

If advisers want to change their assets under management or anything other than their disciplinary history, state registrations, regulatory oversight, exams and employment history, they can pay to do so, said Ryan Alfred, co-founder and president of BrightScope. For $100 per month per adviser or $250 per month per firm, subscribers can change information such as assets under management. They can also add a photo, a description of their services, links to articles in which they have been quoted, blogs, social-networking-site profiles and recognitions that they have received, he said. But Ms. Caton said that charging advisers to fix misleading information feels like extortion. “They are basically saying, "We are going to report what's easiest to get, and if you want to change it, pay for it,'” she said. BrightScope will change any information on the site if it isn't in the adviser's ADV, Mr. Alfred said. “If they want to supplement what's publicly available about them, that's great, but that's beyond the scope of what we do for free,” he said. Mr. DuVarney called BrightScope and asked if he wasn't willing to pay, if he could opt out of the site. He was told no. “I feel like I am being held hostage by BrightScope,” Mr. DuVarney said. Advisers also complained that because the site relies on ADV information, it can look like they are new to the business. For example, the site says that Flynn Zito Capital Management LLC was established in March 2010, but that is the date that the firm filed as an RIA, said Doug Flynn, one of the advisers who founded the firm. He and his partner formed the company in 1997 under LPL Financial Inc. but decided to run it as its own RIA last year. Mr. Alfred said that he would be happy to work with Mr. Flynn to update that kind of information. Mr. Flynn said that he won't pay to update his information on the site. “If someone is going to choose us because they take information from the Internet as truth, then they are probably not going to be a great client,” he said. Mr. Alfred acknowledged that many advisers may not want to pay for the service right now. “However, if we are successful in getting large volumes of consumer traffic, I think some advisers may change their minds,” he said. BrightScope hopes that the Advisor Pages will shed some light on the need for Finra and the SEC to improve their disclosure processes. “[Advisers'] problems are less with us and more with the form and the regulator,” Mr. Alfred said. “That said, we do everything in our power to resolve their concerns.” E-mail Jessica Toonkel at jtoonkel@investmentnews.com.