February 27, 2024

Your Money: BrightScope Ranks 401(k) Plans, and Attracts Critics

In 2009, Mike and Ryan Alfred, now 30 and 28 years old, introduced a rating for most of the big 401(k) plans and gave poor scores to many of them. In Act 2, the brothers and their company, BrightScope, put the names and disciplinary records of thousands of stockbrokers and investment advisers up on the Web where anyone could find them.

While the data provides plenty of utility for consumers, BrightScope aims to make money by selling detailed reports to retirement plan administrators, mutual fund companies and investment advisers.

And for their trouble, the brothers have been called all sorts of names in industry publications. Their tactics, according to the complainers, hold investment advisers “hostage” and feel like “extortion.” They’re a front, perhaps, for plaintiffs lawyers. Or they are simply “sinister.”

If this all sounds familiar, it’s because the same thing happened when Morningstar turned unflattering spotlights on the mutual fund industry, and when Zagat, TripAdvisor and Yelp started ranking various businesses.

Those four companies have proved their legitimacy, or at least their staying power. And now the brothers Alfred face a similar test: Are they just a couple of punk kids who will flame out, or will their efforts help us all have more money sooner than we might otherwise? THE BEGINNING BrightScope began not with the Alfred brothers but with their co-founder, Dan Weeks. While the brothers are all steely-eyed intensity, Mr. Weeks, 51, is way out on the jolly spectrum. That demeanor has been a big help, given all of the feathers BrightScope has ruffled.

In 2007, Mr. Weeks was an engineering manager at Hewlett-Packard struggling to understand his 401(k) plan. He built a Flash application to sort out his risk tolerance and fund choices and showed it to his real estate lawyer, who happens to be the father of the Alfred brothers.

Mr. Weeks’s lawyer suggested that he show the tool to his entrepreneurial sons, and the three began brainstorming over glasses of Maker’s Mark. “We had been thinking a lot about 401(k) plans, but we still couldn’t search and find out how good one plan was,” Mike Alfred said. “So we decided to build a rating.” Mike now serves as chief executive of BrightScope, while his brother Ryan is president. Mr. Weeks is chief operating officer.

The Alfred brothers weren’t exactly coming at this cold. Mike had traded stocks as a Stanford undergraduate and Ryan completed finance internships during his summers at Harvard. They both worked for their father when he was in the insurance industry, and the brothers also operated their own investment advisory business.

But they were not 401(k) experts. Still, the three raised some money from angel investors in the San Diego area, and the brothers flew to Washington to see how easy it would be to extract filings about companies’ 401(k) plans from the Labor Department. It took them several hours to print just 20 company reports.

That pace wouldn’t do, so the brothers began flooding the Labor Department with Freedom of Information Act requests, asking for hard drives full of 401(k) filings. “They said ours was one of the most onerous they had ever received,” Ryan Alfred said, smirking ever so slightly.

At the same time, the brothers e-mailed anyone they could think of who might persuade the Labor Department to make all the information available electronically. After about nine months of pestering, they succeeded. “We were so obnoxious, we were like mosquitoes” Mike Alfred said. “They had to kill us eventually.”

(Jason Surbey, a Labor Department spokesman, said that BrightScope wasn’t the only company asking for the information.)

THE 401(K) PRODUCTS BrightScope soon published scores of consumer ratings, and it eventually added 403(b) retirement plan rankings, too, for nonprofit groups. Eventually, it became clear that its data had even more value to two other groups.

First, the company created Spyglass, a service for retirement plan consultants who want to help smaller employers. It allows someone making a pitch to know just how high the target client’s fees are and how poorly the mutual funds in its plan have been performing. Meanwhile, the biggest moneymaker for BrightScope in the next year or so will probably be something called Beacon. Here, BrightScope provides data to the fund companies showing which employer retirement plans own their funds, which ones don’t and which employers own competitor funds that haven’t been performing well.

Half a dozen BrightScope employees spend all day sorting through the data that flows in from the Labor Department. Those six are in a room of about 35 people, including programmers, sales people and others, probably more than local fire codes allow.

The office has a slight odor, and not the kind that might waft up from the tuna canners downstairs. It’s the smell of too many people working too many hours. They all see the potential to get rich, presumably, but there’s a cause they believe in, too. One sign notes that the big idea is to help millions more retire with dignity. Another proclaims BrightScope as an “Unstoppable Rebel Force.”

That forcefulness has rubbed plenty of people the wrong way. Steve Utkus, a principal at Vanguard, engaged in an entertaining back-and-forth with the company via both companies’ blogs last year.

Article source: http://feeds.nytimes.com/click.phdo?i=15d41db80179edfc1af612539762496a

Speak Your Mind