Unflinching Fundhouse to tackle rating agency bias

Advisers got a new string to their bow today in the battle to pick the right fund, a new ratings agency that promises to provide negative ratings where they are warranted.

Unflinching Fundhouse to tackle rating agency bias


FundHouse.co.uk, which began in 2007 in South Africa and opened offices in the UK four years ago, says what diffentiates it from its goal is to provide “genuinely unbiased” ratings on funds available in the UK and European markets. It is able to remain objective because it does not charge the fund managers whose funds it rates a fee of any kind. Instead, its business model rests on advisers and ultimately adviser platforms being willing to pay for the rating.

For now, however, the UK arm is funded by the South African business, which consists of both a ratings agency and a discretionary fund management arm.

Rory Maguire, co-founder and MD of Fundhouse’s UK business acknowledged that there are a number of credible fund research providers in the UK market but added that there remains a structural conflict when the people that use the service are not the same as those who are paying for it.

“In order to prove one has a client-first mind set, you need to be able to answer three questions, who is paying you, how strong are your convictions and what qualifies you to say the things you do? Not charging the fund group’s answers the first question, that we co-invest in the funds to which we give a tier one rating answers the second. The third point is that each member of our team has worked for a fund manager and we understand how they work.”

According to Maguire, the other point to note is the time taken on each rating. “We allow the managers as much time as they need to argue their case and tell us where we are wrong. And, what we try to ensure is that even when a manager disagrees with a rating, they understand how we reached our conclusions.”

The group says each rating takes on average 50 man-hours to complete and results in one of three ratings: Tier one – the group’s top rating, tier two and finally tier three, which implies the group has “one or more fundamental concerns about aspects of the fund and believes there are better alternatives”.

The ratings are freely available via the group’s website for registered advisers, as are one page summarised reports for 45 of the 200 funds researched so far. The full reports are available for a fee, according to different service agreements, but Maguire says that one comprehensive report is offered for free per month.

The first report to be offered in full is the firm’s view of the Standard Life GARS Fund, to which it has given a tier three rating.

“We would rather not have launched with a negative rating,” Maguire said, but we decided to start with it because of how many people own it and its size and, it so happens that we have some concerns about the fund.”



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