Is research filtering diluting the quality of financial advice?
To what degree should dealer groups filter the data they receive from research and ratings houses?
In circumstances where dealer groups pay research and ratings houses for their services and then pass the cost on to their planners, it is arguable that there should be no filtering whatsoever except, perhaps, where there is a need to eliminate patently extraneous information.
But, as was made clear during Money Management’s recent ratings house round table, filtering does occur, and the ratings houses are not comfortable with the degree to which it impacts on the clarity of their research.
While few would dispute the right of a dealer group to place its own interpretation on research in the interests of developing an approved product list (APL), surely it runs counter to the best interests of clients if individual planners are denied full access to the source material — access that would facilitate a better and deeper understanding.
The degree to which being fully informed on research can assist planners to protect their clients was made clear in the events that preceded the collapse of Basis Capital.
Notwithstanding the fact that Basis Capital had been included on the APLs of a number of dealer groups, some planners steered clear because they fully understood the risk profile of Basis as an investment.
What was important about the planners who steered particular clients away from Basis was that their decision was not based on the ultimate recommendations of either the ratings houses or the dealer groups, but on their own assessments and understanding of the available information.
In other words, the planners were able to deliver appropriate advice because they had read and understood the research.
They understood that Basis Capital should never have been included in the model portfolios being suggested for clients seeking relatively conservative investment exposures. Not only did they understand their clients, they understood the nature of Basis Capital as an investment.
It is on this basis that the Parliamentary Joint Committee on Corporations and Financial Services would be justified in asking some pointed questions about the nature of the relationships that exist between dealer groups and ratings and research houses.
Perhaps more importantly, the PJC might then consider how the relationship between the dealer groups and the ratings houses impact individual planners in terms of what they are being asked to pay and the information they are ultimately delivered.
How can a planner claim to have delivered appropriate advice to a client when the information upon which it is based has been diluted by a filter?
AUTHOR
Mike Taylor
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