Rich and Co.

Retirement’s Frankenstein: BrightScope is a Symptom – Not the Problem

with 2 comments

The Problem

  • Advisors, insurance agents and brokers have been mislead as to the profitability of retirement plan business
  • Individual/retail advisors business practices and tools are being “bolted-on” and rushed into the institutional retirement markets
  • They don’t fit and have created a mismatched “Frankenstein” of retail-retirement plan approaches
  • BScope tried to serve this “monster” and so has created more havoc than solutions

Retail?  Retirement?  Individual?  Institutional? — Can’t Have It Both Ways
Here’s a good story to illustrate.  Recently we discovered that the two principals of BrightScope, the 401(k) retirement plan website had been fined for selling a variable annuity to a 529 plan that was accused of being “…unsuitable, irresponsible, not reasonably needed and lacking a strategy for risk management.”

We reported this recently online and to the industry press.  The response?  No big deal and it wasn’t felt to be newsworthy!
We posted this on our blog, made the FINRA reports available to others, posted on professional Linked In groups and notified some media.  In subsequent follow-up with reporters and editors from the brokerage trade press we have been, somewhat but not totally, surprised by the following responses:

  • None of the media, while BrightScope figured prominently in numerous stories, had checked the backgrounds of the people they were writing about.  Even though controversy and serious concerns and weaknesses have continued to plague the BScope business practices, it appears no one knew the principals were brokers prior to starting BScope
  • We found editors, less than interested in this serious matter and reporters arguing about why this wasn’t news and actually trivial.

Here’s is one exchange:

Reporter – “The Alfreds settled their customer dispute.  I am not a lawyer but I’m pretty sure this is different from being found guilty of a violation of securities law.”

R&C — “No, in fact they are mis-portraying and spinning this to you.

    1. They were forced to go into mediation for an offense against a qualified retirement plan — which is mandatory with a formal complaint.
    2. They were found guilty of the claimed offense.
    3. They then were told to pay over $100K in a fines
    4. This is recorded as permanent event on their federal regulatory record

Likely, they will not be able to get a job in the business again.  Not because they have been banned but because the standards are very high now.  It is extremely rare for:

    1. These events to occur in a brokers career
    2. Even more so for brokers less than 30 years old”

Reporter — “Right, but only required to kick in $30,000 themselves.”

R&C — “I show:

    • “Settlement Amount: $135,000”
    • “Monetary Compensation Amount: $135,000”

Reporter — “Right, but only required to kick in $30,000 themselves.“

Guess that makes it OK.  Not much money makes it un-newsworthy.

In the largely, broker-oriented Linked In discussion groups where this item was posted, there was zero response.  One, two TPAs commented.

This struck us as a great example of how different expectations and behaviors are judged to be appropriate in a retail vs and institutional culture and business.   So the response to this news seems to fall along two lines:

  • In the retail advisor world, what the Ryan’s did was a “ding” on their record.  A youthful indiscretion.
  • However, in the retirement world this is a serious and permanent indicator of future risk.  If a professional were to engage the Ryans or BrightScope they may be held in legal jeopardy, knowing this history.

How can we have such different perspectives around the same event.  The explanation is because the world or retail and retirement are very different.


Written by Rich and Co.

May 19, 2011 at 7:35 pm

2 Responses

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  1. This is excellent reporting Rich & Co. Your article sheds a light not only on the Alfreds and their dishonestly but also it sheds a light on the media industry. First, there is very little fact checking probably because there is very little money to hire fact checkers like in the old print world days. Second, in this digital media world companies like BrightScope can hire Publicists who not only brokering favorable article to the digital media but also broker “affiliate advertising” relationships. You just watch Brightscope will have advertisements [click throughs] on RIABIZ, FORBES, MOTLEY and others.

    Boston McHugh

    May 21, 2011 at 8:46 pm

  2. With regards to the FINRA fine, in most all serious violations like the Afreds Scam on their customer it is common the broker/dealer employer to contribute the majority of the fine since they have the deepest pockets. In this case the customer was harmed to the amount of $1,000,000 in his written complaint. This contingent liability goes against the broker/dealer during a GAAP audit. So, in most all serious cases, the employers want the representatives [Michael S Alfred] gone ASAP. An offer is presented such as “we the broker/dealer will contribute $100,000 towards settlement and not terminate you for dishonesty if you pay $30,000 and agree to resign.” All compliance HR departs are able to read through the lines when someone like Michael Alfred is seeking a job. They understand there is a problem with this person and they would not hire him despite his U5 stating the reason for departure as voluntary.

    David Martz

    May 21, 2011 at 9:07 pm

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