Research houses stand their ground
They may have expanded their services, but research houses are not about to give fund managers a free pass to market. Jason Spits reports.
Related: Rate the Raters 2013
Research houses are pretty clear on who they are and what they do. Despite not competing with fund managers, and not even being reliant on fund managers bringing products to market, research houses have made it clear there is no love lost because there was never any in the first place.
“We are a gatekeeper and not a door opener and are probably regarded as a hard maker by many managers, which is why we don’t do so well in this survey,” van Eyk Research chief executive Mark Thomas said.
His view on the gatekeeper role is shared by the heads of Morningstar and Lonsec, who state that distance is the only way they can operate within the market.
“Our business model is not collaborative with fund managers and we still see ourselves as a gatekeeper that provides funds advice to our financial planning clients so they in turn can work with their clients,” Morningstar co-head of fund research Tim Murphy said.
Lonsec chief executive Amanda Gillespie said the gatekeeper role was an arms-length position taken to manage the research process.
“It has to be arms length and we can’t collaborate with managers in any sense or there would be too many conflicts of interest to manage in every manager relationship,” Gillespie said.
“We aim to be open and transparent in our process and decisions and managers can take our findings and use them in a review of their own business and that information, on any manager we rate, is available to all who want it.”
This is not to say that research houses have stood still in recent years, rather that when they have moved it has been toward supplying the needs of end-users and not product producers and providers.
“We are guided by our planning clients as to what we cover and we do respond to them, not to the managers, and we do not consult with managers because it is just not part of our model,” Murphy said.
This dialogue also shapes what van Eyk Research has been offering clients, according to Thomas, who said that if any doors have been opened they have been to provide planning clients with greater market access and understanding.
“We have had discussions around issues like the Future of Financial Advice, the global financial crisis, and compliance and transparency, because we look at the investment market and its wider environment. If this changes we change our research to meet the needs of planners,” Thomas said.
Similar shifts have taken place at Lonsec, with Gillespie stating that as the market has shifted so have the questions asked and answers given.
“The research process has evolved as new products have entered the market but the level of information we are asking for, and what we do with it, has increased as well.
“We also provide feedback to managers about gaps that may exist in sectors within the market, but this comes first from our own planning clients who bring those concerns and comments to us,” Gillespie said.
So while the mutual cold-shoulder is likely to remain, research houses do want fund managers to understand and appreciate their processes and purposes.
“We do want fund managers to understand what we do. We have made it transparent and they should not be surprised in the results, but when managers are not rated well, then they tend to complain,” Gillespie said, with Murphy claiming their work has industry-wide value.
“The presence of research houses meant there were less product blow-ups here than in the US and Europe during and since the global financial crisis. On that score product providers, regulators, planners and consumers have been well served by a robust research house market,” Murphy said.
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