Zenith grabs gold from fund managers

rate the raters research houses Zenith lonsec morningstar mercer research

16 August 2016
| By Oksana Patron |
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Part one of Money Management's 2016 Rate the Raters survey found that, unlike last year, Zenith was ahead of the pack, followed closely by Mercer, while Lonsec saw a comparative drop in performance, Oksana Patron writes.

The Rate the Raters survey revealed that Zenith won gold among research houses, scoring the highest number of points and outperforming its peers in four out of six categories.

Mercer ranked second to snatch silver, delivering its strongest performance across two categories.

Also, while SQM Research was a market entrant and hence a small player last year, it had attracted a larger share of fund managers to use its services this year. It was set up in 2014 to fill the void left by van Eyk's departure.

Some comments before scores

Money Management surveyed almost 60 fund managers this year who were willing to not only provide scores but also valuable feedback on the research houses, as well as thoughts on the general trends impacting the market.

According to one fund manager, the views and processes of many research houses tended to directly reflect the interests of the major advice networks owned by the banks, and major life companies. Another fund manager noted the intense regulation imposed by the Future of Financial Advice (FOFA) reforms had a significant impact on the level to which ratings houses could engage with fund managers and the amount of feedback they could provide.

Meanwhile, some fund managers also suggested some research houses, while still active in the field of fund ratings, no longer saw this function as part of their core business. Fund managers felt this could lead to deterioration in the quality of research teams.

Other concerns included the lack of understanding of their products, investment processes or business models by the research houses. There were also concerns that while experienced analysts attended initial consultations with fund managers, junior staff, who did not completely grasp the objectives of the strategy, subsequently completed the report.

Also, the fund managers noted that some of the subscription models were constructed in such a way they were still charged a very similar fee to be allowed to "promote the rating" as the pay-to-be-rated houses would normally charge.


The 2016 survey found the two most frequently used research houses by fund managers were Zenith and Lonsec, with 99 per cent and 97 per cent of the respondents, respectively, stating that they had their products rated or reviewed by these two research houses. This also meant that Lonsec was pushed down to second spot in favour of Zenith.

Morningstar maintained its third place, with 76 per cent of fund managers saying they had used it to receive ratings for their products, followed by Mercer which was chosen by only 44 per cent of the respondents in the survey who stated they had used it over the past 12 months.

In addition, recent market entrant, SQM Research, managed to attract over one third of all the fund managers surveyed by Money Management to use its services this year.


When it came to rating the research methodology applied by each of the research houses, it was hard to overlook Mercer's performance this year.

While Zenith earned the highest number of single "excellent" ratings, overtaking last year's winner, Lonsec, with over one third of fund managers describing Zenith's methodology as excellent, Mercer was the strongest performer in this category, with 79 per cent of respondents rating its methodology as either "good" or "excellent".

This result came as no surprise as Mercer shone in the same category last year when it managed to significantly improve its ratings for its research methodology over the year before. However, it was closely followed by its traditionally strong rivals Lonsec and Zenith, whose research methodology was described as "excellent" or "good", by 78 per cent and 76 per cent of fund managers, respectively.

Meanwhile, Morningstar managed to improve its year-on-year performance, with more than two thirds of respondents rating its methodology as "excellent" or "good" this year, compared to only 40 per cent last year.

In the eyes of fund managers, SQM Research was only slightly behind Morningstar, with two thirds of respondents rewarding it with "excellent" or "good" ratings in this category. Mercer was also the only research house that did not earn a single "below average" rating this year.

Rating satisfaction

When it came to satisfaction with ratings given out by research houses, Mercer was again the winner, with 37 per cent of fund managers describing the ratings given out by the company as "excellent".

However, it was worth emphasising that SQM Research snapped at Mercer's heels with close to 35 per cent of respondents also describing the level of satisfaction from their rating as "excellent". Only 26 per cent of clients deemed Lonsec ratings as excellent, while 20 per cent ranked Zenith's performance as "excellent".

Furthermore, only 14 per cent of respondents rated Morningstar's performance as "excellent". On the other hand, Morningstar received the highest score when it came to "poor" satisfaction rating, with 19 per cent of fund managers who had their products reviewed by it describing it as such.

Turnaround time

In terms of the turnaround time of research, Zenith again delivered the strongest performance as far as the fund managers were concerned, with almost 16 per cent of them describing it as "excellent" and a further 41 per cent stating it was "good".

However, when compared to last year's result, Zenith saw a slip from over 90 per cent to slightly less than two thirds of respondents reporting the turnaround time was "excellent" or "good".

SQM Research finished second, as 46 per cent of fund managers said the turnaround time needed for their research was either "excellent" or "good". Lonsec registered a drop from 18.75 per cent of managers describing the company's turnaround time as "excellent" last year to only 12 per cent assigning it a similar rating this year.

There was also a decline in the number of fund managers who felt that the company's turnaround time for its research was "good", registering only 30 per cent, compared to 44 per cent last year. While Mercer struggled in this category last year, with over half of all respondents rating it as "below average" or "poor", it showed a slight improvement this year with 36 per cent of all fund managers describing it as "below average" or "poor".


When it came to the transparency of the ratings process, Zenith returned to the top spot with the highest number of the fund managers (46 per cent) claiming that the transparency of its research process was "above average".

While 38 per cent of all fund managers described their level of satisfaction with Lonsec as "above average", the research house was overtaken by SQM Research, with 40 per cent of its clients saying its transparency was "above average".

Unfortunately, around the same number of respondents decided that Mercer's transparency was "below average", which was significantly higher than last year, where just over 20 per cent of fund managers rated by Mercer described their level of transparency as either "below average" or "poor".


This year, Zenith's staff were again among the most respected in the minds of fund managers, with over half of those rated by the company (52 per cent) describing the company's staff as "above average" in terms of their quality and experience.

Zenith was closely followed by Mercer in this category, with half of all fund managers rating its staff as "above average". Subsequently, Lonsec claimed third place with just over 40 per cent of respondents saying its staff quality and experience could be rated as "above average".

However, Morningstar's staff had one of the lower ratings in the industry, with only 35 per cent of respondents concluding that its staff quality was "above average", while 15 per cent of fund managers rated it as "below average".

However, the lowest score and the weakest performer in this category turned out to be SQM Research, which saw the highest percentage of fund managers (20 per cent) describing the quality of its staff as "below average". In addition, it registered the lowest score, with only a modest 32 per cent of them describing its personnel quality as "above average".


In terms of feedback provided by research houses to fund managers, Zenith beat out Lonsec, with almost half of its clients rating feedback it had provided as "above average", pushing Lonsec down to second position, and on par with SQM Research.

Forty per cent of fund managers described the feedback they received from these two companies as "above average". Once again, this category proved challenging for Mercer, with only 12 per cent of all managers that it had rated within the last 12 months rewarding it with "above average", while 24 per cent of the managers admitted its feedback was "below average".

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