Managers look past money to focus on results

While research houses view their pay model as the centrepiece of their offering,  fund managers are more concerned about timely and digestable results, writes Jason Spits. 

Financial planning groups and fund managers are well served when it comes to product ratings services in Australia with five organisations offering research on a range of investment vehicles. 

Part of the sales pitch from these ratings houses is the research model they offer and how planners and managers pay to access the ratings they produce. At present two models are in use for fund managers - pay to be rated, used by Lonsec and Zenith, or pay a marketing/subscription fee to access ratings and use them in advertising and marketing material, used by Morningstar, van Eyk, and Mercer. 

The two models have generated debate over the years with claims about conflicts of interest even reaching the ears of the Australian Securities and Investments Commission, leading to the reworking of regulations governing conflicts of interest and disclosure for investment product research and ratings groups. 

However the latest Money Management Rate the Raters survey indicates that research models and payment mechanisms are less important for funds management groups than the skills of those conducting the research, the transparency of the process and the feedback provided to the fund management groups. 

This year’s survey data has shown no distinct bias away from research houses who charge upfront fees for ratings with 100 per cent of managers surveyed indicating they had used both Zenith and Lonsec in the past 12 months and had paid to do so. Conversely only about three quarters of managers stated they used Mercer, Morningstar or van Eyk.  

This indifference was further emphasised by survey data which stated that the average number of funds that managers sought to have rated was 14 funds. However Lonsec and Zenith rated more funds than the average while Mercer and van Eyk rated slightly less than the average number of funds, closely mirroring the survey results in this area from last year. 

This attitude to the research model and the payment system is not a new development with respondents to last year’s survey also stating they were active users of Lonsec and Zenith, which increased its fund manager usage rate from 80 per cent last year to 100 per cent this year.  

Mercer also increased its manager usage rate from 50 per cent last year to 77 per cent this year, with Zenith and Mercer possibly benefitting from the withdrawal of Standard and Poor’s which recorded a 97 per cent usage rate in last year’s survey before leaving the Australian market. 

How then have those research houses that remained fared over the past 12 months? In short, they have all performed well in certain areas with all research houses receiving high scores for the time they spend with fund managers.  

The survey respondents stated that the average time a research house spent with a fund manager was two to four hours. This timeframe extended out past four hours in about a quarter of cases but managers did state this was often the result of research houses and the fund manager discussing more than one product. 


Lonsec has continued to be fare very well with fund managers who rated it higher than other research houses in most categories. While it grew its rating for excellence in the area of the fairness of its ratings from 23 per cent last year to nearly 30 per cent this year its rating for poor climbed from zero to nearly 12 per cent this year. It also saw a drift downwards in its ratings for its research methodology with a combined excellent and good rating last year of 93 per cent dropping to 84 per cent this year. 

A similar drift also occurred in opinions relating to the quality and experience of its personnel with 50 per cent of respondents rating them above average compared to 63 per cent last year. Despite this, fund managers stated they understood Lonsec’s ratings process with 65 per cent rating it above average, up from last year’s response of 55 per cent. 

In the areas of feedback received by managers and the turnaround time for a rating, Lonsec continued to hold its own with more than 90 per cent of manager respondents giving positive responses. 


Mercer has continued to be regarded by fund managers as having high calibre personnel with more than 70 per cent of respondents labelling them as above average, up from two-thirds of respondents last year. At the same time Mercer’s research methodology also remained highly regarded with 75 per cent of managers considering it good - an increase from last year but at the expense of its excellent rating which moved from 27 per cent to zero this year for this category. 

In the areas of transparency of the ratings process and feedback given to managers, Mercer was squarely in the middle with most managers rating it as average for both categories. Similar ratings were received for turnaround times but fund managers felt the fairness of ratings had shifted with more stating it had done poorly, up from 13 per cent to 33 per cent, from last year.  


Morningstar posted solid results across most categories and increased its ratings in a number of them according to survey respondents who ranked research methodology and personnel highly. In the area of research methodology Morningstar increased both its excellent and good ratings, up from 60 collectively last year to 80 per cent collectively this year while its’ ranking for above average in the area of personnel grew from 36 per cent to 43 per cent. 

Turnaround times also improved on last year with 64 per cent of managers ranking it excellent or good compared to only 36 per cent last year. In the areas of transparency of ratings process and feedback to managers, Morningstar remained consistent with last year, with a majority of managers considering them to be average or above. 

Despite these opinions, managers ranked the fairness of ratings provided by Morningstar as marginally lower than last year with lower scores for excellent and fair and a small increase in the score for poor. 

van Eyk Research 

van Eyk also continued to reflect a similar ranking by managers compared to last year with the fairness of ratings once again considered to be mainly excellent or fair. Nearly 40 per cent of managers stated the turnaround time for a rating was excellent or good, up from 28 per cent last year. 

However it appears van Eyk has struggled to communicate its research methodology with managers rating it excellent or good falling from 65 per cent last year to 42 per cent this year. Despite this 75 per cent of managers ranked the transparency of its process as average or above, a slight fall from last year’s figure of 90 per cent. 


Zenith’s ratings across the board have demonstrated that there are no longer bit players in the research house sector. From launching 12 years ago Zenith has built a reputation which is reflected in this year’s manager ratings. 

Across five of the six areas considered by managers in the survey Zenith showed marked improvement only narrowly trailing Lonsec in many areas. 

In the area of research methodology Zenith last year was ranked excellent or good by 62 per cent of managers, while this year the same ranking was 87.5 per cent. The rating for excellent alone was the highest of any research house at 37.5 per cent. 

Similar results were seen for the quality and experience of research house personnel who were rated as above average by more than 50 per cent of managers, up from 29 per cent last year. At the same time, feedback received by managers was also ranked highly for Zenith with 50 per cent of managers rating it above average compared to 17 per cent last year. 

In terms of turnaround time nearly 70 per cent of managers rated Zenith as excellent or good, up from 37 per cent last year while transparency of ratings considered above average climbed from 26 per cent to 37.5 per cent. 

The only area not to see improvement was that related to the fairness of ratings with managers remaining unmoved with 19 per cent stating it was excellent (up from 17 per cent in 2013) and 69 per cent stating it was fair (down from 71 per cent last year). 

Leading the pack 

Taken together, is it possible to draw some conclusions from the Rate the Raters survey data? 

As stated earlier, it appears that fee models are not as big an issue for fund managers as they would appear to be for the research houses themselves. Yet, at the same time, research houses are unlikely to be making widespread changes seeing these models as both integral to their business and business ethos. 

So while research houses will stick to their opinions, and continue to improve their services, fund managers are far more likely to change their opinions as those service offerings wax and wane. 

From the opinions proffered this year, Lonsec has come out on top - but only narrowly - with Zenith having substantially closed the gap from previous years. Mercer, Morningstar and van Eyk, while performing well in selected areas according to fund managers, were not able to carry that across the board. 

Lonsec has been a past winner of Money Management’s Research House of the Year award, holding the title for four years until it was awarded to Morningstar last year. 

This award is calculated using the results of this survey and a second survey selling the views of dealer groups and will be announced in September. 

With Lonsec performing well in this round, and Zenith snapping at its heels - leaving the other three research houses in third position, the opinions of advisers who work with the ratings and that of the fund managers who seek them will continue to play a role in defining service and standards in investment product research.  

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