AIOFP looks to target researcher houses’ hip pockets

Peter Johnston

The Association of Independently Owned Financial Planners(AIOFP) is in negotiations to buy its managed funds research wholesale on behalf of its 140 member practices in a bid to bypass the major industry research houses.

A major retail bank has already offered to sell the AIOFP its in-house research at wholesale rates, according to chief executive Peter Johnston, and the association is also in discussions with an independently-owned boutique research provider.

It is also starting to make approaches to various offshore research groups that monitor the Australian managed funds market.

The move follows negative preliminary legal feedback related to a proposed class action by AIOFP against four major researchers over their investment grade ratings given to two now-frozen Basis Capital funds.

The proposed class action against van Eyk, Lonsec, Morningstar and Standard & Poor’s was announced by the AIOFP last month and is currently being researched by lawyer Arwed Turon of Lindquist Partners, an Adelaide-based boutique commercial litigation firm.

However, AIOFP chief executive Peter Johnston said the preliminary assessment from Lindquist is that “the research houses have put so many disclaimers in place that it will be difficult at this stage to take action against them”.

“This begs the question of why financial planners as an industry are paying top-dollar for advice that the researchers themselves are not prepared to stand by on its own merits, and has led directly to our decision to set up our own research facility.

“If we can’t get them legally, and hopefully we will be able to do both, we will hurt them where it hurts most — in their hip-pocket,” Johnston said.

The proposed research facility will comprise of a national panel of AIOFP members that will outsource some but not all research functions on behalf of all AIOFP members on a flat wholesale basis, he said.

“It is only really for the top 20 per cent of the funds, mainly those that are based offshore, that we will need to outsource the research function, as the remainder are Australian equity funds, and they are in the top 50 Australian stocks anyway.”

Johnston believes outsourcing can deliver an “identical service to what our members currently receive from the research houses, but with the advantage that we will control the process (including building in professional indemnity insurance to cover losses) and save on costs”.

“Our research facility will operate on much the same basis as what the banks have been doing for many years, overlaying a ‘filter’ process whilst paying for research on a wholesale flat fee basis.”

Johnston also believes outsourcing at wholesale rates will save the AIOFP membership “up to 70 per cent of what they are currently paying to the research houses on research”.

“We’re basing that saving on the widely accepted fact that each financial planner in Australia pays a fee of about $2,000 per annum to the research houses for research.

“Now, if you multiply $2,000 per annum by the 14,000 planners in Australia, it amounts to $28 million per annum that the research houses are creaming out of the financial planning sector.”