Lonsec takes the research path less travelled

Lonsec is a true research house. At least, that’s according to managing director Grant Kennaway, who says it is the main distinguishing feature of the Melbourne-based company.

“We don’t have any product out there that we’re manufacturing. We’re just doing research.”

Kennaway believes detachment from the manufacturing process offers focus, and above all, independence.

In the past, research houses have been heavily criticised by fund managers, which have accused them of using their ratings to leverage their own affiliated businesses.

“We certainly don’t set out to use our ratings to boost other arms of the business because there are no other arms to boost. Our business is research and stockbroking. That’s all we do,” Kennaway says.

But although Lonsec operates as a separate entity, it is not totally independent.

Lonsec was established as a specialist investment research and stockbroking house in 1994 as a subsidiary of Lonsdale Limited.

At the time, Lonsdale was a privately-owned company comprising a financial planning dealer group and a financial planning development software company.

By July 2000, the group had been bought out by Zurich Financial Services Australia, which still wholly owns the research house.

Today, Lonsec has 42 staff, with half assigned to research and the other half to broking.

“Zurich obviously has some stake in some financial planning dealer groups, but we hardly have anything to do with them and they’re totally separate businesses,” Kennaway says.

Advisers constitute 90 to 95 per cent of Lonsec’s customers, with a handful of fund managers also subscribing. Fees are charged to both, with fund managers having to pay to be rated — raising further questions of impartiality.

While nearly 80 per cent of fund managers surveyed in Money Management’s Rating the Raters survey felt paying fees for ratings could compromise those ratings, Kennaway is adamant that charging fund managers a fee to be rated does not compromise Lonsec’s research offering.

He says charging fees are an unavoidable reality of running the business.

“To hire the best investment team you need to defray the cost of that,” Kennaway says.

Lonsec also conducts peer reviews.

“We’ve got internal checks, but you must remember that the market’s there to keep all the providers honest. People aren’t going to use your research if it’s tainted or compromised.”

Lonsec has gone to additional lengths to distinguish itself from the competition. Earlier this year, the research house set up the Lonsec Alternative Research Group (LARG) specialising in unlisted products within the agribusiness sector and property syndicates.

“It’s just a differentiator,” Kennaway says of LARG.

“One of the things clients like about our offering is they can get all their research needs from the one place. They don’t have to subscribe to three providers to get that diversified research coverage.”

That one place is the Lonsec web site, which was officially launched in 2001.

Kennaway says this is where the bulk of subscribers go to access the group’s recommended lists and model portfolios with the rest accessing research through Xplan or IDT, which provide the complete Lonsec research and stockbroking product through their financial planning software.

A subscription to Lonsec managed funds research is about $1,000 per proper authority holder and the equities research sets advisers back about $800, but collectives can always cut a deal.

To further improve its offering, about 18 months ago Lonsec switched from multi asset class fund manager reviews to sector reviews.

“Sector is the way to go because it’s better to make a relative comparison between the managers and it also allows us to specialise so we can allocate work load on expertise on any particular area.”

Lonsec also offers a service called ‘investment perspective’, which provides an update of significant industry changes within 24 hours.