However, while some ratings providers have been expanding and changing their offerings (and one shutting up shop- S&P), it is not clear whether this change is happening fast enough, or whether the likes of Morningstar, Rayner Spencer Mills and Square Mile Investment Research are developing the right new or enhanced services.
Rayner Spencer Mills yesterday (Wednesday) announced the launch of two new types of rating, a fund range rating and an SRI rating. It claims the move is a direct response to the changing needs of financial advisers and will help address the difficulties they face at present.
“RDR has led to advisers telling us that ‘we need more information’,” said Geoff Mills CEO of RSMR. “[Advisers] are also trying to meet the growing demand for multi asset investment and SRI,” he added.
Mills said there are some fundamental shortcomings with ratings services as they have traditionally been when faced with today’s investment environment. The increasing popularity of multi-asset based approaches means financial advisers need more specialised support in this area than they are receiving at the moment. He added that while there is no shortage of multi asset offerings in the market, selecting the right ones for clients with varying needs and investment aims is increasingly difficult.
There are two main reasons for this difficulty according to Mills. First, the terminology used to describe the various features and approaches used by funds is not consistent across different asset managers and second, it is much more difficult to compare two fund range solutions than to compare individual funds with one another.
Also, the greater regulatory scrutiny and requirements for advisers mean that they need more compelling evidence that they have done sufficient due diligence and comparison in forming their advice to clients. This means that they need more information from independent sources that they can hang their hat on in the event of any unfavourable client outcomes.
Whether a fund range rating service like the one being launched by RSMR is the answer to this, and whether other ratings providers will follow suit remains to be seen, but it appears a step in the right direction at the very least.
“I can understand why RSM is doing this,” said Gavin Haynes, managing director of Whitechurch Securities. “Financial advisers are increasingly aligning themselves with particular investment companies and will be under more pressure to show they are offering balanced advice,” he added.
Haynes also noted that it makes sense for ratings providers to adapt their offerings to the increasingly popularity of multi-asset approaches.
It is not all rosy however, and Haynes pointed to what seems an obvious potential danger in rating a range of funds as opposed to an individual fund. “Many fund ranges have their gems and their weak points so you have to question how a single rating can apply to a number of funds collectively,” he said.
