Adviser Ratings to rate firms under new system
Adviser Ratings has proposed a new system under which 1,800 financial advice licensees will be rated, following consultation with government, regulators and industry.
The ratings methodology is described in a white paper released today for industry feedback, Adviser Ratings said. The paper was authored by Jerry Parwada, a Professor of Finance at University of New South Wales Business School.
Adviser Ratings chief executive, wealth, Mark Hoven, said the destruction of trust in the financial advice industry is “deeply concerning” and that the new rating system for licensees is intended to differentiate the better service providers and “rebuild community faith in our industry”.
Adviser Ratings proposed two types of ratings: the first placed on all licensees using publicly available or commercially procured data, and the second incorporating proprietary and qualitative information gleaned directly from the licensee.
Hoven said the loss of confidence in institutional brands and the broader advice system “demands this kind of evidence-based, scientifically validated service”.
“We believe a summary indicator of adviser quality like a licensee rating based on a consistent and transparent methodology would vastly improve the way customers search for and track the ongoing status of financial advice providers,” he said.
Professor Parwada said the focal point of the ratings system’s methodology is to predict actions within a licensee that are detrimental to client’s interests, chief among these being instances of misconduct.
“Recent studies show that even indirect exposure to misconduct destroys trust and results in non-participation,” he said.
“A key differentiator of the proposed rating methodology is that it will be backed up by a standing research capability designed to stress test the factors predicted to influence quality of advice as well as keep track of changing dynamics in the industry.”
Hoven claimed that beyond consumers, he expected these ratings to benefit a broad industry audience.
“With adviser movement at 33 per cent annualised since the Royal Commission advice hearings, their thirst for deeper insight about licensees, both their incumbent and prospective, has never been greater,” he said.
“Equally, licensees seeking to benchmark internally and differentiate in market should find value in the rating as a comparable measure of quality and risk management.”
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