At the end of April, hundreds of thousands of financial advisors entered the age of
transparency when BrightScope
launched financial advisor pages. There has never been a
comprehensive online directory for financial advisors driven by public
data. Now, due to the efforts of two young entrepreneurs and their
California-based startup, anyone who wants to learn more about
financial advisors before tapping one to manage their assets can do so
online.
The advisor data was locked up at the Securities and Exchange Commission
(SEC) and the Financial Industry
Regulatory Authority (FINRA), the largest independent securities
regulator in the U.S. Both the SEC and FINRA declined to comment for
this story.
“Ryan [Alfred] and I knew this data was there because we were
advisors,” said Mike Alfred, co-founder of BrightScope. “We knew data
had been filed but it wasn’t clear what was being done with it. We’d
never seen it liberated from the government databases.”
While they knew the public data existed and had the idea to do this
years ago, Alfred said it didn’t happen because they “weren’t in the
mindset of being data entrepreneurs” yet. “By going after 401(k)
first, we could build the capacity to process large amounts of
data. We could take that data and present it on the web in a way that
would be usable to the consumer.”
Notably, the government data that BrightScope has gathered on
financial advisors will go further than a given profile page. Over
time, as search engines like Google and Bing index the information,
the data will be searchable where consumers are actually looking for
it. That’s aligned with one of the laws for open data that Tim
O’Reilly has been sharing for years: Don’t make people find data. Make
data find the people.
“We believe that most consumers use Google, and that they don’t
think the information exists if they don’t find it there,” Alfred
said. “Google has already indexed 50,000 of the advisor pages after
only 8 days. In a month from now, if you do a search on any of the
advisors in the database, plus their company names, you’ll find them.”
That comes with a caveat: To date, BrightScope has gathered data on
some 450,000 people and companies, but they’re still unsure of the
total number of advisors and businesses. “The difficulty is that FINRA
and SEC wouldn’t give a listing by identifier of all of the different
people in the database,” Alfred said. “We’re trying to figure out how
big the universe is by trial and error.”
There’s a reason some financial advisors aren’t going to be happy
with this kind of transparency: it’s going to expose people who have
regulatory issues.
“There’s been much more pushback and much more negative response
than expected,” said Alfred. “Advisors are saying that they don’t want
to be on there, that the data is inaccurate, that there are compliance
issues or they think we’re extorting them. The primary complaint is
that the data is not complete. Many advisors don’t realize that their
data is filed improperly.”
If advisors see problems with the data, they can contact
BrightScope for a correction. “There’s a misconception going around,”
said Alfred. “We don’t charge advisors to correct data from public
filings. What they do pay for is to add other information that’s not
from public filings, like LinkedIn, Twitter, a picture, or information
about a firm that’s not in the data.”
Charging for additional layers of custom information might sound
like a familiar business model to Radar readers: It’s quite similar to
the revenue stream the iTriage healthcare
app has applied to open
health data.
OSCON Data 2011, being held July 25-27 in Portland, Ore., is a gathering for developers who are hands-on, doing the systems work and evolving architectures and tools to manage data. (This event is co-located with OSCON.)
Open government entrepreneurship
Those looking for open
government entrepreneurship will be hard pressed to find a better
example than BrightScope. They also might be challenged to duplicate
it. Both of the Alfred brothers are elite athletes. Mike runs ultramarathons.
Ryan competes in Iron Man triathlons. The discipline required to run
50 miles comes in handy when you’re trying to liberate public data
locked up in government institutions that don’t practice proactive
disclosure. Many startups won’t or can’t make that investment in time
or capital.
“We don’t think the resources
available [on FINRA.org] are poor,
exactly, but the way that consumers access it isn’t very useful,” said Mike Alfred. “They
force it into a PDF. The only way you can find a record is if you know
it’s there and can search by the exact name. What if you want to find
all advisors within 20 miles of your zip code who have no regulatory
infractions? You can’t do it.”
The efforts of BrightScope are in line with traditional
entrepreneurship: identifying an opportunity in a market that no one
else has created value around, building a team to capitalize on it,
and then investing years of hard work to execute on that vision. In
the process, BrightScope has made government data about the financial
industry more usable, searchable and open to the public. As CNN archly
put it, now a consumer can ask “Is my advisor the next Madoff?.”
The Alfred brothers have also delivered on the vision for open
government laid out in President Obama’s memorandum
on regulatory compliance, wherein Obama directed that agencies:
… with broad regulatory compliance and administrative
enforcement responsibilities … shall develop plans to make public
information concerning their regulatory compliance and enforcement
activities accessible, downloadable, and searchable online. In so
doing, agencies should prioritize making accessible information that
is most useful to the general public and should consider the use of
new technologies to allow the public to have access to real-time
data.
With use of new technologies, BrightScope has delivered on that
directive, although they’ve acted as a private company without the
express cooperation of FINRA and with what Alfred described as
“limited cooperation” from the SEC. They’ve also show nhow government
data can fuel jobs. “Government is not good at exposing
information,” said Alfred. “It’s good at setting standards. It’s good
at enforcement, in ensuring that everyone filed. But once they have
the data, they’re notoriously bad about displaying it back to the
public in ways people can use it.”
The White House has repeatedly cited the work of BrightScope as
an example of fostering
innovation through open government where government
acts as a convener. “Entrepreneurs are benefiting from a shift in
agency culture that has dramatically lowered the barrier to
information,” wrote Aneesh
Chopra, the chief technology officer of the United States, last
November. The White House has not commented on
the impact of BrightScope’s new service yet.
The release of this financial advisor data online, however, has
come not through the actions of government but through the hard work
of these open government innovators. “First, we asked them if we could
have it,” said Alfred. “One person said we could pay $7,000 every
time, others said we could never have it. That would be cost
prohibitive. so we decided to get [the financial advisor data] ourselves. In some cases, we went through the states. In others, we used technological means.”
Alfred said that after seeing how BrightScope functioned, the
Department of Labor (DoL) underwent a shift in how it responds to, and
works with, BrightScope. It remains to be seen whether the
SEC or FINRA will change their stances. “It’s been very different than
with DoL,” said Alfred. “FINRA really doesn’t want you to have the
data at all, from what I can tell, while the SEC is allowing more of
the SEC data to go out on a for-profit basis.”
Fortunately, as agencies adapt to new business relationships, consumers are starting to see increased access to government data. Now, more data that the
nation’s regulatory agencies collected on behalf of the public can be
searched and understood by the public. Open
data adds more transparency into a financial sector that desperately needs
more of it. This kind of data
transparency will give the best financial advisors the advantage
they deserve and make it much harder for your Aunt Betty to choose
someone with a history of financial malpractice.
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