Mercer Investment Consulting and Standard & Poors will soon be the only two raters of retail managed funds left, according to the head of the Association of Independently Owned Financial Planners (AIOFP), which has so far signed up 719 members to a ratings service that they themselves will own.
The executive director of AIOFP, Peter Johnston, said only raters with global scale would survive as dealer groups sought to cut costs in preparation for a commission-free world, while at the same time advisers were less accepting of ratings which had been paid for by the product manufacturer.
Johnston said that Lonsec alone had already lost $450,000 annual revenue from AIOFP advisers who had signed up to the Filtered Research Committee, a member-owned entity which has subcontracted Mercer Investment Consulting and McGregor Asset Consulting to recommend a portfolio of managed funds for members to construct their own Approved Product List. The two advisers are paid via a flat fee and have undertaken to receive no payments from product manufacturers.
The per-adviser subscription of $950 a year also includes direct equity options through Goldman Sachs & Partners (formerly Goldman Sachs JBWere) and Morgan Stanley Smith Barney, as well as access to the Mercer IS website.
“Advisers face a real conundrum,” Johnston said. “They heavily rely upon research to make recommendations to clients but when product failure occurs, research houses do not stand by their recommendations and ASIC does not appear to hold research recommendations in high esteem. Advisers then get attacked by the media, the Financial Ombudsman, lawyers and the courts and rarely win. Advisers generally do not have the time or expertise to leave the office and assess products, they need to rely upon something. We have come to the conclusion that advisers only have one choice with this dilemma – make sure that the research they do receive is free of conflicts and totally professional.”
Subscriptions to the Filtered Research Committee had been purchased by 43 AIOFP member practices, Johnston said, with Wealthsure and Australian Financial Services alone accounting for $12 billion under advice. He claimed “strong interest” from another 20, that would take total adviser numbers using the service over 1000 within its first year of operation.