Research house Lonsec has warned the Australian Securities and Investments Commission (ASIC) to resist revisiting a possible ban on direct payments from fund managers to research providers, saying it would ruin the availability of research for financial advisers.
Speaking at Lonsec’s annual roadshow in Melbourne, Lonsec manager of research strategy Richard Everingham warned that if the regulator decided in future to move against the direct payment model, it would reduce research house competition and reduce the total amount of available research.
Everingham also criticised suggested payment options such as a pure user-pays subscription model as unworkable.
A pure user-pays model may be viable in the future, but not at present, Everingham said.
"You won’t pay that [full] cost of research, it is a very intensive activity, and very, very expensive," he said.
Financial advisers only value research at one-tenth of the cost of what it actually costs to produce, Everingham said.
Financial planners would also possibly pass on the cost of research, which would be an anti-Future of Financial Advice move, he said.
Lonsec receives direct payments from fund managers to underwrite the cost of research.
Everingham claimed external market evidence showed the direct payment model did work. Financial advisers are free to choose which research house to receive ratings from, he said.
Any conflict of interest arising from payments from fund managers to research houses can be managed robustly and effectively, Everingham said.
"This is a conflict we work under, but like in lots of areas of business, it’s not the fact that you’ve got a conflict, it’s how you go about managing it," he said.
