Researchers have their right of reply, and a few parting shots

All the research houses contacted byMoney Managementagree with the opinion of fund management groups that they should be held accountable for their ratings, and that they disclose their ownership and financial influences.

Where they disagree is on the matter of fees. Most fund managers believe that they should not be required to pay fees to be rated.

ButMorningstar’s head of consulting Anthony Serhan says: “Implicit in that response is that fund managers think we should be charging investors and advisers more. It comes down to who is going to pay for it, if not the fund managers?”

In defence of fees,Assirt’s head of research Caroline Saunders says: “[Paying fees] enables the research house to provide good quality research and to employ good quality people… it’s a way of defraying the costs of running the business.”

Which is, of course, a commercially sound argument. However, almost 80 per cent of fund managers surveyed are concerned that the payment of a fee could compromise ratings.

Thevan Eyk Researchbusiness model means that van Eyk ratings are bought and paid for by van Eyk clients, not fund managers. They are for van Eyk clients only and are not for publication in the media, according to managing director of van Eyk Research, Stephen van Eyk.

“I don’t know of any researcher that would be knowingly biased because of money,” he says.

“However, I think what concerns fund managers and the industry generally may be that in [some research house models] it’s kind of in their interest to find some sort of favourable place for more managers, because the more managers that want to use their ratings, the more they are going to get paid.”

InvestorWeb’s chief operating officer Toby Potter dismisses the argument as “a complete furphy”.

“We operate in a heavily regulated environment. I would not subscribe to the view that [our model] compromises our ratings. I guard our client relationships and our licence jealously.”

Fund managers also criticised the transparency of the methodology used by the research houses, questioning the level of objectivity in rating. The problem, according to the research houses, is that no method can be completely transparent.

“The only completely transparent method is to go on past performance,” says van Eyk, “but unfortunately it doesn’t work. So you have to use your brain and experience to make judgements on the quality of people. The more you do that, the less transparent it gets.”

Serhan agrees. “Even 100 per cent quantitative research has subjective inputs,” he says.

Elsewhere in the professionalism stakes, InvestorWeb and Morningstar did not fare as well as their competitors.

Potter was neither “concerned nor surprised” by this response, but sees better times ahead. “Within the last few months we have had severe team reconstruction [but] we now have a committed, hardworking, capable team.”

Serhan believes that the Morningstar results are clouded by negative perception rather than reality.

“The reality is we have good people already here. If there are problems, we’re trying to address them. We’ve got more work to do in communicating our message, the changes taking place and the reality of the company.”

Overall, with the exception of Morningstar, the research houses were reasonably satisfied with the results of the survey.

While Serhan believes Morningstar’s capabilities have improved over the past year, this belief is not reflected in the survey results.

“I think that’s more the perception than reality,” he says. “Some of these perceptions may stem from staff changes, and we accept that. We’ve been working hard to counter that, but it takes time. We’re looking to expand, we also have better processes underpinning research methodology and two new research tools.”