Investments  

Platforum ratings agency research challenges FCA findings

Platforum ratings agency research challenges FCA findings

Most advisers do not rely on a single fund or product research agency, according to the latest data published by Platforum.

The report from the UK fund distribution research organisation confirms the significant influence of research agencies in the selection of retail funds, as previously highlighted by the Financial Conduct Authority.

But it also challenges the regulator's hypotheses that advisers are typically using one research agency.

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This follows the publication late last year of an FCA report that raise the issue of advisers' reliance on ratings agencies, and questioned their reliability.

The fund rating agencies hit back against criticism they harbour conflicts of interest that hurts investors, defending their independence in the face of claims from some in the industry that ratings are given on a ‘pay-to-play’ basis.

According to Platforum's research, a total of 85 per cent of the top selling funds on adviser platforms in the second quarter 2016 had a top rating with an agency, and in the study all of them had at least one rating from a research agency.

Two thirds of advisers using research agencies rely on more than one agency, it found.

On average they use 2.2 to make their selections.

The proportion of advisers using one research agency has declined by 12  per cent over the last two years.

Research agencies influence £210bn of advised fund assets held on platforms, 52 per cent of the total adviser platform market assets under administration, according to Platforum.

In contrast, 16 per cent of assets held by self-directed investors on platform are influenced by research agencies representing £24bn.

Platforum senior researcher, Miranda Seath said: “It comes as no surprise that research agencies have the strongest penetration among advisers that retain control of fund selection through proprietary model portfolios, in-house discretionary fund managers and good old fashioned fund picking.

"Investment outsourcing has been the vogue among advisers following the Retail Distribution Review. But we see evidence that advisers are looking to move further up the value chain by taking on discretionary permissions and building in-house solutions. The influence of research agencies looks set to increase.”

Platforum senior researcher, Rodolfo Crespo: “The influence of research agencies in fund selection is higher in the adviser market than in direct to consumer. While 61 per cent of advisers are using research agencies and two thirds use more than one agency."

 Richard Ross, director of Norfolk-based Chadwicks said: "We are biased towards passives and where we use active funds this is to get exposure to sub-classes not easily accessed passively.

"We make a selection based on fund fundamentals rather than the apparent skill of the manager - my perception is that past performance sits at the core of agency ratings so it follows that they do not form a material part of our selection process.

"I think the FCA is asking the wrong question - it's not whether IFAs use a wide enough range of ratings agencies but whether these agencies add any value other than ticking a compliance box."