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Vol.25 No.32 | August 25, 2011 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
ANZ’S NEW LOAN FACILITY: Page 11 | RATE THE RATERS: Page 19
Lonsec reprises top rating By Mike Taylor LONSEC has been named Money Management’s Ratings House of the Year for the second year in succession, on the back of strong support from both the fund managers it rates and the dealer groups it services. The Ratings House of the Year Award is the result of Money Management’s twostage Rate the Raters survey process, in which both fund managers and dealer groups are interrogated on their views of the major ratings houses on issues ranging from the quality of their research, value for money, personnel, customer service and model portfolios. The runner-up for 2011 was van Eyk Research, which managed to regain much of the ground lost due to senior departures in the previous 18 months, including that of its founder, Stephen van Eyk. Lonsec emerged as a winner, because it topped the scores across both the fund manager and dealer group elements of the survey, but it was the fund manager survey which proved crucial to its win.
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Lonsec would not have a successful research business if we compromised on the quality or objectivity of our research.
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– Amanda Gillespie
Amanda Gliiespie Where the dealer group survey was concerned, Lonsec’s overall result was tied with that of smaller ratings house, Zenith. Subsequent to the two Rate the Raters surveys being held, Zurich announced the sale of Lonsec to the Mark Carnegie linked Financial Research Holdings, which also houses specialist superannuation ratings house, SuperRatings. This was later followed by the departure of head of research, Grant Kennaway –
Product providers need to shift focus to users By Chris Kennedy THE probability of launching a financial product and having it be unsuccessful is higher than it has been in the past, meaning providers need to shift their focus more towards the end user. That is the outcome of a panel session organised by financial services recruitment agency Vantage Recruitment – featuring speakers from Colonial First State (CFS), Bendigo Wealth, and Macquarie. “Product providers are currently at a tipping point whereby they need to shift their focus from being product-centric to focus more on the experiences of the end user,” said CFS general manager of marketing and distribution, Linda Elkins. “Product manufacturers may be victims of their own past successes, where it used to be possible to simply release a product and know it would sell – that won’t be the case going forward,” she said. “We are already seeing that new financial products being launched are less likely to be successful than in the past,” she added. “We need to move from being productcentric to customer-centric – that penny has now dropped. Now we’re on the tipping point of saying ‘how do we do this’,” she said.
Many financial services institutions such as IAG, NAB, Challenger, Macquarie, AMP and Westpac (including BT and St George) have now engaged specialist customer experience consultants, Different, to help define product and service strategies by engaging customers throughout the design process. Creative director of Different, Anthony Colfelt, said companies can benefit from a customer-centric design (CCD) focus by knowing more about how their customers think and interact with a product or service up-front, which can save expenses in terms of restructuring offerings down the track. “But CCD is an ongoing commitment rather than a one-off expense, and often senior management in financial services want to know up-front exactly how much project cost outlay will be involved – which creates reticence in terms of committing to CCD,” Colfelt said. Bendigo Wealth senior manager, technical and research, Julie McKay said this means a client-focused approach can require a compromise with senior management, who often want to be able to see results straight away, therefore a balance Continued on page 3
events which may alter perceptions of the ratings house in the 2012 survey. In determining the Ratings House of the Year, Money Management took account of the number of clients serviced by each ratings house and provided a higher weighting to some criteria such as quality of research and customer satisfaction. While Lonsec was a clear winner in 2011, its margin over the other ratings houses was narrower than had been the case a year earlier – with van Eyk, Stan-
dard & Poor’s, and Mercer each receiving a higher ranking. According to Lonsec’s head of research, Amanda Gillespie, the company’s business model was at the core of its back-to-back success. Gillespie said there had been a lot of debate around business models in the research industr y, but added that “Lonsec would not have a successful research business if we compromised on the quality or objectivity of our research”. What was acknowledged by both Gillespie and van Eyk chief executive, Mark Thomas, was the importance of personnel with Gillespie crediting the stability of Lonsec’s research team as a key ingredient for success. Commenting on van Eyk’s runner-up status, Thomas paid tribute to a successful rebuilding effort, and the recruitment of quality people into key roles. “We continue to keep investing in the business,” he said. “It is true that we went through a period that challenged the culture of our business, but the culture has won,” Thomas said.
Standard performance criteria needed By Andrew Tsanadis A trend towards low performance hurdles and high outperformance fees among fund managers has drawn criticism from ratings houses amid suggestions there should be an industry standard for performance criteria. In Lonsec’s ‘Australian Equity Long/Short Sector Review’ released in July, researchers found some fund managers set “inappropriate low performance hurdles” in their performance fee structures. Lonsec stated, “To some extent, this is justified, given the relatively low capacity limit of these products and the additional costs associated with employing shorting skills”. Typical performance fees for the 14 managed
funds reviewed were found to be between 15 and 20 per cent of any returns greater than a fund manager’s hurdle. The EQT/SGH Absolute Return Trust was the only managed fund that did not charge a performance fee, hurdle rate, or a watermark. SG Hiscock managing director Steve Hiscock said he does not believe investors should be charged a full base fee as well as a full performance fee. “What I find interesting about the report is that a number of funds have the same base fee (MER) as Absolute, yet still charge a full performance fee,” Hiscock said. The funds Hiscock refers to are Smallco Investment Fund and Wavestone Australian
Equity Long Short Fund, which have a base fee of 1.4 per cent and 1.5 per cent, and a performance fee of 18.64 per cent and 15 per cent, respectively. Hiscock said managers should either charge a full base fee or a full performance fee in order to avoid “double dipping” on an investment that has limited capacity. Hiscock said this standard should be incorporated across all management classes to avoid the setting of low hurdles. In justifying the performance fee of ING Extended Alpha Australian Share Fund, Jim McKay from ING Investment Management said the fund’s 20 per cent performance fee was in line with that of other Continued on page 3