The fund management industry is set for a shake-up as a new fund ratings service launches that promises to dish out negative reviews when they are warranted.
The service, to be launched by Surrey-based Fundhouse.co.uk, will be solely paid for by financial advisers that subscribe to its full reports and receive no money from fund providers.
Currently all major fund ratings services are paid predominantly by fund houses, which either commission ratings for their funds or pay to promote the ratings after they are awarded.
This leads to a situation in which negative ratings for funds are rare, which is at odds with the current surge in negative sentiment towards active fund managers - the majority of which tend to underperform passive funds.
Fundhouse is led by Rory Maguire, who helped to found the firm in 2007 in South Africa, before bringing it to the UK three years later.
As well as the newly-launched fund ratings service, the firm also provides consultancy services such as portfolio construction advice to clients in South Africa.
The firm has three ratings for funds, from tier 1 for funds that they have a positive view on to tier 3 for those funds with a negative view.
Around 30 per cent of the 200 funds rated so far have received the negative rating.
The firm said it was right thing for the end client to deliver negative ratings, given that data shows that the average fund in many sectors underperforms in the long term.
The current model of fund managers paying for ratings, which Fundhouse is looking to compete against, has come under attack in the past for failing to provide an impartial service.
The two-tier Fundhouse service will provide short versions of its fund reports for free to anyone registering on its website, but the full-length reports are only available if advisers pay a fee to Fundhouse, except for one free report available per month.
There are five members of Fundhouse’s fund ratings team and Mr Maguire said all of them have either been fund managers or worked closely with fund managers in previous jobs.
