The Money Management Rating the Raters Surveyin this edition had already begun to generate much interest even before the last words had been written and the edition sent to the printers.
The reason for this is, like any group in the industry, research houses are keen to know what others are saying about them.
However, in this instance, those others are funds management groups and in the past, the relationship between the two has been strained.
Of course, this is understandable. Research houses have in recent years taken on an air of authority that some may argue is not rightly theirs. But while it exists, funds managers are not going to be pleased with rankings and star ratings that portray them in a poor light. This becomes even more understandable considering that star ratings are very easy to understand while the underlying analysis is not. Besides, star ratings work much better in advertisements.
However, what is clear is that funds managers are seeking more from research houses. They would like to see more differentiation between research houses. They would like to see greater disclosure about the financial influence and ownership structures of research houses. Funds managers would also like to see research houses licensed and subject to some manner of compliance codes.
These are not unreasonable requests given that the industry has been pushing towards an atmosphere of increasing disclosure at the product distribution level.
But research houses can jump the gun at this point and take a leaf from the book of the planning industry. Some time ago, it was felt that planners had to be better educated and regulated, but long before the Financial Services Reform Act even hit the industry radar as CLERP 6, planners were doing so and had begun to adopt the DFP and CFP marks.
If research houses are to be licensed and measured against a list of standards then it would be much better to compose that list in conjunction with funds management groups than in response to any enforcing body. The latter option usually results in a set of standards and rules that satisfies few. Financial planners will long remember the Alienation of Personal Services Income battle as a case in point.
Yet the licensing of research houses will still have funds management groups arguing over many of their other attributes well into the future, but what it will achieve is to add a quantitative element to their own work, which will be set as an industry standard. Where the additional value, and probably industry debate will lie, will be in the qualitative elements.
