AIOFP goes after research houses
The Association of Independently OwnedFinancial Planners (AIOFP) is threatening to launch a class action against research houses van Eyk, Lonsec, Morningstar and Standard & Poor’s for rating Basis Capital’s two frozen Australian hedge funds as investment grade.
Chief executive Peter Johnston said the AIOFP had “confirmed support so far from at least 35 of its member planning practices” for the action to proceed against the researchers for alleged “negligent advice” in issuing the rating to the two funds.
Johnston said the AIOFP had a “clear mandate” from its membership (140 practices) to approach Perth-based litigation funders IMF and “probably” lawyers Slater & Gordon to initiate the class action.
He said the AIOFP is hoping the class action will result in an “order for any damages incurred by planners on behalf of their clients resulting from negligent advice provided by the major research houses”.
“We anticipate that separate class actions will be brought against each of the four research houses (and possibly others) for their specific research provided to the planners and clients of Basis.”
Morningstar head of research Anthony Serhan said the research house was prepared to “take our fair share of criticism on the issue — and so we should”.
Serhan said Morningstar intended to “standby planners in this, and that the best way of doing this is to work with them to explain to clients the current adverse events happening in the (global) marketplace”.
However, he added that Morningstar’s ratings are “not meant to assess the market component other than to articulate what we think the risks are, given the nature of the underlying securities — and I believe we have done that in our rating”.
According to Johnston, a “number of AIOFP members are very angry with van Eyk, in particular, for what they say is a failure to inform planners that it removed its A rating for the Basis funds in May 2006”.
“It appears van Eyk downgraded the Basis fund to a BB rating within its Blueprint Alternatives Fund, which led to the removal of Basis from the fund, but forgot to tell subscribers to their research service.”
Van Eyk director Stephen van Eyk rejected the allegations, saying there appeared to be confusion over the downgrading of Basis Capital and the timing of its removal from Blueprint. The downgrading was “extremely transparent and explained to all of our subscribers”.
“Even before the downgrade of Basis, we could not have done more to explain to our subscribers that it was a high-risk investment and only suitable for high-risk investors,” he added.
“I’m not sure what we could have done to satisfy some people, but we did release the research first to all subscribers, and we did withdraw it from Blueprint second, and it was automatic that we had to do it.”
Recommended for you
ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test.
Quarterly Wealth Data analysis has uncovered positive improvements in financial adviser numbers compared with losses in the prior corresponding period.
Holding portfolios that are too complex or personalised can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.
As the financial advice profession continues to wait on further DBFO legislation, industry commentators have encouraged advisers to act now in driving practice efficiency.
