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.” “Advisers should refuse to deal with research houses that operate under this business model from November 1, 2010.” The deadline for that particular challenge to the industry fell due as this magazine hit the streets, although Grant Kennaway, the general manager of research at Lonsec, wasn’t expecting to be out of business. The AIOFP’s Johnston had claimed that Lonsec was down $450,000 in annual revenue alone from the dealer groups which had “seen the light” and withdrawn their subscriptions in favour of the Mercer Filtered Research Committee. Kennaway does not directly refute that claim, but does allow that “during the 2010 calendar year Lonsec has increased its subscriber numbers and subscriber revenue, retaining all major clients”.

Kennaway is a veteran of the ratings agency wars, waged between the majority who charge managers to rate a product – only after, the raters say, it has passed a set of minimum quality requirements – against van Eyk and Mercer, which claim to only give free ratings, and only to the products they like, with the resultant revenue shortfall made up by the marketing of multimanager funds based upon the ratings. “I think advisers know that both models have potential conflicts that need to be managed, and that it’s down to the integrity of the people at any particular organisation,’ he says. Kennaway is somewhat agnostic on how financial advice is delivered in the future, because he thinks there will be a need for his service regardless. “Whether financial advisers continue to select options from a platform, [or react to the end of sales commissions] by siding with a dealer group that creates and owns a wealth management entity, we still have a role to play,” he says. “There are still 14,000 singlemanager products out there, and you need a good deal of infrastructure just to put a decent filter in place.”

Or as Dugald Higgins, a senior investment analyst at Zenith Investment Partners, ponders: “Is there a planner out there that really wants to attend all of their dealer groups’ investment committee meetings?” Indeed his boss, Zenith director and co-founder David Wright, says that research committees have “come back into vogue” at dealer groups, with at least a couple of independent members becoming obligatory. Wright says that supplying members of such committees is an increasing line of business for Zenith. Another growth area for the agency is supplying dealer groups with advice on portfolio rebalancing – a practice that Wright says fell by the wayside during the equity markets boom up to 2007. “A lot of the basics went out the window while the Australian equity market was booming. Clients were happy to keep things as they were, advisers went along for the ride and pretty soon someone who thought they had a ‘balanced’ portfolio ended up with a ‘high growth’ portfolio.” van Eyk Research might be in fierce competition with Zenith, not to mention disagreement on the best model for remuneration, but it does concur that ratings agencies will have a more hands-on role at dealer groups in the future.