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The iconoclastic Alfred brothers' latest innovation will give clients a voice - but experts and advisors fear compliance complications

The company that raised industry hackles when it introduced ratings of RIAs based on government data last spring is now preparing to give consumers a forum to sound off about their financial advisors.

BrightScope, Inc., which provides background on 450,000 advisors based on reports from the Securities and Exchange Commission and FINRA, is adding a section to its Advisor Pages that will let consumers write reviews about advisors – a concept akin to popular consumer websites like Yelp or Tripadvisor.com. See: BrightScope's huge advisor database is first search-engine friendly way to connect consumers, advisors.

The firm hopes to integrate the section into Advisor Pages by the end of this year.

The La Jolla, Calif.-based data tracker's launch of Advisor Pages back in April set off a minor firestorm of controversy that even caught the attention of The New York Times in an article .

But Mike Alfred, who, with brother Ryan, is a co-founder of Brightscope, says the original rating product has been so successful the company is taking this next step.

"People want this information," Alfred says. "We want to help real clients share their experiences working with advisors so that clients know what it's like to work with that advisor. [Consumer reviews are] nothing new but it's never been done well in the advisory space. Yelp is great for finding a Chinese restaurant but it's not a good platform for leaving useful information about an advisor." (See: BrightScope sticks to its guns as it responds to outspoken critics of its Advisor Pages)

Rick Kahler: I buy all sorts
of services today off the web
based on user feedback. Why should
the financial services and financial planning
professions be excluded?

Shining a light

Some advisors' first-blush reaction to Brightscope's latest effort has been decidedly positive.

"This is a good thing," says advisor Rick Kahler of the Kahler Financial Group in Rapid City, SD, whose RIA manages more than $120 million. "I buy all sorts of services today off the web based on user feedback. Why should the financial services and financial planning professions be excluded? In a market-driven economy, the consumer is king."

Advisor Tom Duffy, who provides fee-only planning at Jersey Shore Financial Advisors LLC, also likes the concept.

"The best thing for our profession is to shine some light into the dark dirty corners," he says. "Expose the high-fee, low-return advice that's been given."

Stricter scrutiny

But compliance experts and advisors question whether this portion of the site could cause major compliance headaches – especially since RIAs are not allowed to use testimonials under the Investment Advisers Act of 1940. See: 10 top ways to use social media without courting regulatory trouble.

"I think writing reviews is a great idea," says Robert Siegmann, chief operating officer and senior advisor with Financial Management Group. "But I think writing reviews like Yelp on the advisors website will be seen as testimonials."

Kenneth Kaltman: Regulators in the states
are going to start looking at
these sites and they'll look hard
at them. This could be misleading
and could be harmful to advisors.

Cincinnati-based Financial Management Group manages nearly $200 million in assets.

"To me, it's just opening the advisor to a little more scrutiny from regulators and advisors have got to be careful about what goes on the site – especially if they subscribe to it," says Ken Kaltman, chief operating officer of National Compliance Services, Inc. .

Brightscope charges individual advisors and firms who want to update their pages with pictures, blogs and additional information from $100 to $250 a month.

Kaltman says regulators tend to spend a great deal of time on the Internet researching advisors – including going to their homepages, Facebook and LinkedIn. If this portion of Advisor Pages is successful, it may mean that regulators will start investigating it to ensure no violations are occurring.

"Regulators in the states are going to start looking at these sites and they'll look hard at them," he says. "This could be misleading and could be harmful to advisors."

Too much of a good thing?

While getting positive reviews is a delight, Jennifer Cray, an advisor with Investors Capital Management LLC, is afraid such testimonials might cause more compliance burdens. For instance, when Cray uses LinkedIn, she needs to remove any positive recommendations so as not to get pinged for testimonials.

Jennifer Cray: The burden needs to
be on Brightscope to make sure
their service doesn't create compliance problems
for advisors. We have enough compliance
headaches as is.

"I do believe that consumers should be allowed to post their opinions publicly about any product or service they use," says Cray. "[But] the burden needs to be on Brightscope to make sure their service doesn't create compliance problems for advisors. We have enough compliance headaches as is."

Investors Capital Management is based in Menlo Park, Calif. and manages $167 million in assets.

Calming compliance officers

Alfred agrees that his company must address these compliance issues and understands that testimonials are a compliance issue for RIAs more so than for brokers.

"The way we intend to structure customer reviews will be in line with the spirit of the Investment Advisers Act and the DALBAR No-Action letter, even if not in line with the antiquated letter of the law, which was written long before the era of social media," he says.

Alfred believes most compliance officers will agree with his company's point of view, but says they are also considering pursuing an SEC No-Action letter specifically on the issue of customer reviews to get more "risk-adverse compliance officers comfortable with the idea."

"The compliance paradigm needs to shift and it will with time," he says.

Bumpy launch

Alfred is tight-lipped about major details regarding Advisor Pages because he feels potential competitors are already working on similar projects. Right now, BrightScope is the only firm rating advisors. Alfred declines to disclose the traffic on the BrightScope website, but says it has, at times, quadrupled since Advisor Pages was launched in April.

Earlier this year, Morningstar president Joe Mansueto said his company was considering rating advisors. But in an e-mail last week, a spokesman said the firm has no immediate plans to do so. See: Morningstar's Mansueto views next horizon: rating RIAs.

The launch Advisor Pages was a bumpy one, with advisors complaining of inaccurate information. Alfred says those complaints died down after the first week and interest has remained strong in these pages.

"It's clear people are interested in this kind of information," he says.

Getting it right

As Brightscope prepares to unveil the new consumer comment section, Alfred says there are still many details to be worked out.

He says his firm has learned lessons from sites in other industries and intends to put a screening mechanism in place to prohibit advisors from writing glowing reports about their own practices. Alfred also says advisors will not be allowed to remove positive or negative reviews.

There are also plans in place to ensure that the reviews come from real-life clients. Alfred says it's likely that clients will have to answer a series of questions, such as how long they have worked with the advisor, before posting comments.

"The details are still being worked on," Alfred says. "We're highly confident that the review will be from an actual customer." Inappropriate comments will be removed, he says.

Advisor Pages will also offer a Q&A section where advisors will have an opportunity to answer questions from consumers about financial planning topics such 401(k) plans and estate planning.

Alfred says this is an excellent opportunity for advisors to market themselves as well and to build credibility by answering questions and even posting blogs.

East Coast Management Solutions Llc Yelp

Source: https://riabiz.com/a/2011/10/3/brightscope-to-launch-yelp-like-reviews-putting-advisors-under-the-consumer-microscope

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