Risk houses demand more from raters
In March last yearMoney Managementkicked off its first Rating the Raters survey and canvassed the opinions of retail fund managers in regards to research houses. For some research houses, and their generally accepted research procedures, the verdict was not good.
That exercise was repeated again in March this year and research houses had some way to go before fund managers were entirely comfortable with the research offerings.
It seems this resentment is not limited to investment houses, with life insurance companies also expressing frustration at the quality of ratings and research relating to their business that is presented to advisers.
The similarities in the two markets continued with rating houses stating it was not all a one-way street and the nature of research is complex and difficult, and does not always run the way life companies would prefer (see p21).
So what didMoney Management find in its inaugural Rating the Risk Raters survey?
The results came from a survey of those dozen life companies that supply insurance products to the adviser market and left out groups that merely repackaged product, offered it on a limited basis such as through a bank branch or held a life company licence but did not offer product to advisers, which included reinsurance and health insurance groups. Of this list there were 11 respondents providing a comprehensive set of figures from those groups working in the retail insurance adviser space.
Asked what they thought of the overall capabilities of rating houses from ‘excellent’ to ‘poor’, no research group received a resounding top level endorsement, with most risk houses placing them in ‘good’ or ‘below average’ categories (Table 1).
Only PlanTech Consulting picked up a mention in the ‘excellent’ category, but most of its scores clustered around the middle rankings in which Boss was the standout with 63.6 per cent of risk groups placing it in the good category.
On the other hand, ThreeSixty’s scores were predominantly in the ‘average’, ‘below average’ and ‘poor’ categories.
In the area of objectivity of research and ratings, the results also tended to cluster around the middle, with none of the groups scoring highly in the category of being totally objective (Table 2).
The standouts were PlanTech once again and Cannex, with Omnium, Razar and Smart Comparator also scoring well. But it is worth keeping in mind these last three are premium and feature comparison tools, and do not rank products in the same manner as the other companies listed.
While researchers were generally said to be ‘somewhat subjective’ in their research and ratings, they can take comfort in the fact that only a few risk houses judged them in each case to be ‘totally subjective’.
And in what is either a case of poor communication or incredible vanity, most risk houses believed that research groups did not reflect the broader industry opinion about the quality of life insurer products.
In fact, 40 to 60 per cent of life companies felt improvement was required dependent on the research house in question. Similar sentiments were evident among the risk houses when it came to how long it took before product upgrades appeared on research systems after providing required documentation.
Most life insurers felt this occurred in a timely manner — within 60 days — with only PlanTech receiving a high score for updating information within 30 days. Inversely, ThreeSixty received a low score for being deemed inflexible with insurers tied to set release dates only.
A final theme that arose from the survey was that despite risk houses wanting to comment on the skills of research groups, there was still confusion as to what some of the latter actually did.
Given the age of the life insurance industry and the profusion of ratings, research and comparison tools, this seems odd and to an extent can be explained by the fact the life insurance market is more complex than the investment market.
Nonetheless, in a market that is rapidly changing due to Financial Services Reform legislation and a growing consumer need, both groups must clear the channels of communication. Risk insurance is a product that is hard enough to promote to the public without the industry muddying the waters.
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