'Red Flags'
BrightScope's listings eventually will show "red flags" for investors, including whether an advisor has any disclosed conflicts of interest and whether he or she maintains custody of client assets, Alfred said. Bernard L. Madoff, the broker and registered investment advisor who pleaded guilty in March 2009 to running a Ponzi scheme, kept control of his clients' assets rather than using a third-party custodian such as Charles Schwab Corp. or Fidelity Investments.
It's unclear how BrightScope will be able to publish returns for advisors and brokers while complying with existing regulations about how performance histories may be disclosed, Alfred said. "We're going to sit with the Securities and Exchange Commission and we're going to sit with the Financial Industry Regulatory Authority and talk about the regulatory implications," he said. Finra is the Washington-based independent regulator for the securities industry.
Advisers listed on the site may pay a monthly subscription fee of $100 for each individual advisor or $250 for the firm to add a description of their business, post links to other websites and to insert a headshot or company logo to their page, Alfred said. Advisers won't be able to edit their disciplinary histories or to remove red flags from their pages, he said.
BrokerCheck
Investors also can access registered investment advisors' ADV forms, which disclose regulatory histories and fee schedules, on the SEC's website. Finra's BrokerCheck website lets investors download reports showing past disputes with clients and any terminations.
In January the SEC released a study recommending unifying search results for the Finra and SEC databases.
Independent registered investment advisors managed about $1.5 trillion in total assets, representing about 12% of all wealth-management assets in the U.S., at the end of 2009, the most recent year for which data is available, according to Boston-based research firm Aite Group. Assets held with independent advisors rose about 1.5% during 2009, as assets held with traditional brokers fell about 0.9%, to $4.7 trillion, according to Aite data.
Registered investment advisors may provide investment advice or management and other financial-planning services, typically on a fee basis, and are regulated by either the SEC or state regulators. Brokers may perform similar services on a fee or commission basis and are typically regulated by Finra.
BrightScope manages and maintains a database of about 50,000 defined-contribution retirement plans, which represent about 90% of all defined-contribution assets in the U.S.