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Vanessa McMahon
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Ratings houses that rely on fund manager payments as their main source of revenue are not fully trusted by financial planners.
That is the bottom line of new research conducted this month by Wealth Insights, which also suggested some dealer groups might need to change the nature of their relationship with their research providers.
The research, which comes at the same time as a number of research house principals have been debating their commercial models, also pointed to the need for some of them to remove the perception that fund managers could actually pay for their ratings.
The Wealth Insights research found that 64 per cent of respondents either agreed or strongly agreed that a conflict of interest was likely to exist if research houses were paid by fund managers for their ratings.
Importantly, 26 per cent of respondents were neutral in their response, while only 10 per cent suggested that no conflict existed.
Wealth Insights managing director Vanessa McMahon said the result showed that financial planners were clearly concerned about the potential for a conflict of interest when research houses relied on fund managers as their main source of revenue.
She suggested that the problem ran even deeper for the research houses and the fund managers in circumstances where planners also held concerns about the ultimate impartiality of the ratings provided.
McMahon pointed to the fact that only 30 per cent of respondents believe research houses could offer impartial advice when fund managers paid for their ratings, with 29 per cent suggesting there could be no impartiality and 42 per cent being neutral.
She said in the focus groups that had accompanied her research, planners had concerns that fund managers were prepared to “buy a rating”.
McMahon said the degree to which planners were uncomfortable with existing researcher remuneration models was indicated by the fact that 45 per cent had said they either disagreed or strongly disagreed with fund managers being able to pay research houses for ratings.
Indeed, the Wealth Insights survey revealed that only 22 per cent of respondents agreed with such arrangements.
The research also pointed to a recent dampening in sentiment among financial planners as the rapid recovery in markets took a pause in October and early November. The Wealth Insights Adviser Sentiment Index, which recovered strongly between February and late September, showed a dip in October but remained in positive territory.