July 31, 2018
Advisers and consumers may be able to assess the quality and risk factors associated with a licensee under a new ratings system that is being put forward by research group, Adviser Ratings.
In a proposal released for industry comment, Adviser Ratings stated it would use two ratings with each licensee, the first based on publicly available or commercially procured data and the second based on proprietary information supplied directly by the licensee.
In a white paper accompanying the proposal, Adviser Ratings described the two ratings as ‘unsolicited’ and ‘solicited’, respectively, and stated that it planned on publishing all unsolicited ratings, which would be based on quantitative and qualitative factors assessed by the group.
These factors would include:
- Details of the directors of a licensee and their backgrounds
- Past and current licence conditions, and enforceable undertakings, imposed on the licensee
- The content and construction of a licensee’s Approved Product List
- Adviser bannings or disqualifications within the licensee
- Qualifications and employment history of advisers within the licensee
The solicited ratings, which would be developed with the active participation of licensees, would be based on management level and organisational information, including:
- Licensee compliance records and reported breaches
- Number of FOS complaints and rulings
- Results of external compliance review reports
- Internal adviser reviews and supervision data
- Protocols for accepting new advisers, and dismissing or releasing advisers
“Together, these factors help form a set of analytical judgments that drive the quality of financial advice rating that we assign to each Licensee. This rating expresses our view on the likelihood of favourable outcomes for a client, including reduced risk of misconduct and fraud,” the white paper stated.
The author of the whitepaper, University of New South Wales (UNSW) Business School, Professor of Finance, Jerry Parwada said the proposal was the result of consultations between Adviser ratings, the advice sector, government and regulatory bodies.
“The focal point of our methodology is to predict actions within a licensee that are detrimental to client’s interests,” Parwada said, adding the chief actions of concern were instances of misconduct.
“At stake is the threat to retail customers’ willingness to access financial planning services. Recent studies show that even indirect exposure to misconduct destroys trust and results in non-participation,” he said.
Adviser Ratings, Chief Executive – Wealth, Mark Hoven said the loss of confidence in institutions and the wider advice market required an evidence-based, scientifically validated service.
“We believe a summary indicator of adviser quality like a licensee rating based on a consistent and transparent methodology would vastly improve the way customers search for and track the ongoing status of financial advice providers,” Hoven said.
“Ultimately, we are seeking to assess if licensees are creating and nurturing a culture and operating environment that allows financial advisers to deliver high-quality professional advice in the best interests of their customers,” he added.