Who should be paying for ratings?

Oksana Patron

19 May 2023

Financial Newswire has asked the representatives of the major research houses, during its annual conference Platforms Wraps and Advice Technology 2023, to share their views on what represents the most appropriate and sustainable commercial model to deliver research and ratings.

According to the “Rating the Ratings Houses” study, the views of financial advisers and fund managers on how they perceive the role of ratings have been distinctly different for the past couple of years, which put into spotlight their business models and reflected relationships between fund managers and financial planners.

Lorraine Robinson, executive director, Lonsec Research, told the conference that in her opinion charging advisers would add to the ongoing discussion of the rising cost of advice and that was “not going to fly”.

“It all comes down to [the fact] that you have to have an appropriate business model that is set up to deal with conflict or a potential conflict. We all tap revenue from different parts of industry,” she said.

Rick Di Cristoforo, director of Research & Investment Products (AU/NZ), Morningstar, said the entire conversation in the investment community was about whether fund managers could choose if they wanted or not to distribute the research logo. But, he said, whether they choose this option or not, had no impact on the research.

“We don’t charge fund managers to produce research and to distribute research to the users and investors and advisers, however they can chose to licence the logo. We’ve positioned our business to deliver research to investors and advisers,” he said.

According to Di Cristoforo, it was the fundamental mission for all research houses to provide to the investment community the with their views on whether they should buy, hold or sell investments, given the wide range of investment choices currently available.

Louis Christopher, chief executive of SQM Research, whose research house does not manage money, said that SQM charged upfront for ratings which is “a flat fee well known by the industry”.