Push to lift research house accountability

Investment research house Morningstar has committed to publishing the combined investment results of its recommended funds, claiming that being accountable and transparent is the only way to fight accusations of perceived conflicts of interest.

“Advisers question the role of research houses whenever we don’t perform well. They look at the funds and question why. The only ones who haven’t done that are research houses,” said co-head of fund research at Morningstar Tim Murphy.

“Not every call we make is going to be right, but by publishing how we’ve gone we hope to build a higher rate of trust with advisers,” he said.

Morningstar hopes to boost its credibility and give investors greater confidence by showing how its recommendations stack up.

“Clearly there’s a lot of concern about conflicts of interest and the lack of transparency in the industry … but if everyone can be as transparent as possible, then investors will win and so will researchers,” Murphy said.

Morningstar has committed to showing how the funds in its highly recommended and recommended categories perform compared to their counterparts in less highly rated categories.

Standard & Poor’s (S&P) is set to follow in the footsteps of Morningstar, aiming to publish the results of its recommendations in the coming months. Managing director of fund services at S&P Mark Hoven said transparency is the “most important driver of continuing to support the case for investment research”.

“I think it’s very important — it’s the ultimate expression of quality. It’s not the only measure of a quality service, but it’s certainly the purest,” Hoven said.

Van Eyk Research managing director Mark Thomas said publishing recommendation results is not the only way to offer transparency.

Thomas said van Eyk’s Blueprint fund is the ultimate form of transparency and accountability — putting into practice van Eyk’s recommendation. From the results of the fund, investors can determine just how well van Eyk’s research stacks up against other research houses, he said.

“We’re highly transparent, we publish all of our results on a regular basis … we’re just not as public about it,” Thomas said.