Approved lists: ratings trump sales

Richard Gilbert

Insufficient ratings, not commissions, are the reason why financial advisers do not recommend industry superannuation funds to their clients, according to the latest research from Wealth Insights.

However, Industry Super Network (ISN), the representative body of 14 industry funds, strongly disagrees, claiming the funds are not welcome on the majority of dealer groups’ approved product lists because they do not pay commissions.

As part of its research, Wealth Insights asked more than 660 planners to list the reasons why they did not place clients in industry funds.

The majority said it was because the funds were not on their approved list (41 per cent) or due to a lack of research (18 per cent).

Only 9 per cent cited “no commissions” as their reason for not recommending the products.

While the financial planning community and ISN both agree that the main reason planners do not recommend industry funds is because they are not on their approved lists, their views are divided as to why this is the case.

From a dealer group’s perspective, an independent research house must rate all funds placed on an approved list, with the majority relying on Morningstar, van Eyk Research and Lonsec.

However, the majority of industry funds are rated by Rainmaker Information, Chant West Financial Services and SuperRatings.

Investment and Financial Services Association chief executive Richard Gilbert said if a fund manager wanted placement on a dealer group’s approved list, it was critical they went through the “hoops” set out by the company.

“Any fund manager wanting to get on an approved list has to use the vehicle used by that provider,” he said.

However, ISN manager David Whiteley said “because we don’t pay commissions we are excluded from the approved lists”.

“I think the issue is a little more fundamental than not being rated by certain ratings agencies. I think the issue is that we don’t pay sales commissions and that’s how the industry works.”

Wealth Insights managing director Vanessa McMahon said this highlighted what appeared to be a market failure on the part of industry funds to recognise how the planning industry operated.

“It appears industry funds have not made an effort to embrace the channels that financial planners rely upon,” she said.

“Getting on approved lists is incredibly competitive and if the basics are not done you can hardly expect people to rush to your doors.”

Financial Planning Association chief executive Jo-Anne Bloch feels that at the heart of financial planning is the value of advice, not commissions.

“People go to advisers to get advice and the adviser needs to recommend an appropriate product to suit the client — remuneration is a secondary issue,” she said.

“The whole commission issue is a bit of a beat up to promote industry super funds.”

Wealth Insights will make the full research report available in September.