I love businesses that spin the straw of public or “open” data into private enterprise gold. I’ve covered such businesses before here, here, and here. Open data are relevant to procurement, marketing, weather predictions, and financial markets. Financial markets are where today’s subject, Form 5500, fits in.
Form 5500: Detailed Data on a Huge Market
Form 5500 was “jointly developed by three United States government agencies: the Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC). The Form 5500 Series was created…to collect information about employee benefit plans, including health and pension plans.”
Form 5500 contains financial, expense, investment and provider information on each company’s retirement plan. As of September 2017, these retirement accounts held $8.9 trillion in assets or 47% of all mutual fund assets. That’s a lot of mutual fund and plan fees! (For an example of the Form 5500 contents, here’s a summary of JP Morgan Chase’s form from BrightScope.
Form 5500 for Sales and Marketing: BrightScope and Judy Diamond
BrightScope was the first company I noticed that was exploiting Form 5500 for commercial purposes. BrightScope started a rating system, similar to Morningstar’s rating system for mutual funds, but for retirement plans. I wrote about them here. According to the New York Times, BrightScope’s founders initially received their data manually through the Freedom of Information Act (FOIA). In 2010, companies were finally required to file the data electronically, which made the whole process better Brightscope and others!
Over time, BrightScope, and others like Judy Diamond Associates, turned Form 5500 data into the IRI/Nielsen/DiscoverOrg of the retirement industry. Together, the forms created a complete market picture (and lead machine) for providers of retirement plans. Who has what client? What fees are they making? How has their performance been? In other words, which accounts should I target?!
Open Data Giveth and Taketh Away
The beauty of open data is if you can get it, you get information that is otherwise very hard to find. The negative of open data is that once you have it, everyone else can get it too. So, if you are going to build a business on open data, you better get the data first or do something really original with it. BrightScope got to this open data first, reportedly raised $6 million, and sold for 6x that amount about 8 years later. BrightScope’s head start worked out for them.
Form 5500 for financial analysis: BizQualify
BizQualify has an entirely different take on the same basic Form 5500 data. And it seems ingenious to me. Simply put, BizQualify believes, as apparently some big customers do, that:
- The behavior of management and employees with respect to their benefit plan contributions and funding is predictive of company financial performance.
- Form 5500 is a good way to understand public company pension fund obligations, and
- Form 5500 is a good way to acquire difficult-to-find information on 1 million private companies
Here’s what the company says about claim #1 above:
I’m not smart enough to assess proposition that this data can help predict future financial or stock performance, but it does seem plausible. The second two propositions seem incontrovertible.
Now that BizQualify has the data and has done something unique with it, can they spin some gold before the competitors get in?