Raters wash hands of filtering
Ratings and research houses are uncomfortable with the manner in which some financial planning dealer groups filter their information before it actually reaches financial planners.
That is the bottom line of Money Management’s first-ever ratings house round table, which was attended by representatives of five of Australia’s key ratings houses — van Eyk, Lonsec, Standard & Poor’s, Morningstar and Zenith.
The ratings house representatives also expressed concern that some dealer groups were making no formal use of ratings houses at all and, instead, simply relying on what they could pull out of public domain information sources.
Zenith director David Wright said he was ‘dead against’ dealer groups filtering the information provided by his ratings house on the basis that it defied the very reason ratings houses were being employed in the first place.
He said the ratings houses were already effectively filtering the information according to the requirements as spelt out by the dealer groups so that further filtering was “very dangerous and, from experience, has let the adviser down ultimately”.
Morningstar chief executive Andrew Bird said while dealer groups might be justified in separating out some information to maintain quality, that needed to be treated as a separate issue to broader filtering.
Van Eyk chief executive Mark Thomas said it was the job of a ratings house to provide a client with a scale and that some clients would set the scale of acceptability, but he did not believe they should be allowed to “muck around with the filterings”.
For his part, Lonsec managing director Norman Graham said having sat on some dealer group investment committees and having seen the exceptions they made to a ratings house list, he sometimes wondered why.
Graham said some of the dealer group exceptions to the ratings house recommendations had been things like managed investment schemes (MISs) and he acknowledged that some MISs had been owned, in part, by clients.
Wright said he was amazed that there were dealer groups which did not subscribe to any research and operated their approved product lists (APLs) based on research they were able to glean from the public domain.
“They run their APL and dealership based on research reports they were able to get direct from either the fund manager or the product provider,” he said. “Surely that can’t be compliant. But it happens, and it happens quite frequently.”
Standard & Poor’s head of fund research Leanne Milton said dealer groups who operated on such a basis were not even getting any key relativity or understanding of a sector.
“This is just fraught with dangers,” she said.
See this week's edition of Money Management for in-depth coverage of the issue as part of a round table discussion.
AUTHOR
Mike Taylor
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.
