Adviser Ratings has proposed a new rating system for its network of 1800 financial advice licensees following consultation with government, regulators and industry.
The rating system, which is backed by a government grant, will discriminate across advice providers based on quality and risk.
“The destruction of trust in the financial advice industry is deeply concerning,” Adviser Ratings wealth chief executive Mark Hoven said today.
“With adviser movement at 33 per cent annualised since the royal commission advice hearings, their thirst for deeper insight about licensees, both their incumbent and prospective, has never been greater.
“Today’s announcement of a new rating system for licensees is intended to differentiate the better service providers and rebuild community faith in our industry.”
Hoven added licensee ratings could also impact on professional indemnity insurance pricing and funding terms by financiers, and the due diligence performed by industry super funds building affiliated advice networks.
Adviser Ratings has proposed two types of ratings: the first placed on all licensees using publicly available or commercially procured data, and the second incorporating proprietary and qualitative information gathered directly from the licensee.
The proposal and methodology are contained in a white paper released today for industry feedback. The white paper was authored by University of New South Wales Business School finance professor Jerry Parwada.
The ratings system proposal comes after consultations led by Parwada and Adviser Ratings’ senior management with industry, government and regulatory bodies.
“The focal point of our methodology is to predict actions within a licensee that are detrimental to clients’ interests. Chief amongst these are instances of misconduct,” Parwada said.
“A key differentiator of the proposed rating methodology is that it will be backed up by a standing research capability designed to stress test the factors predicted to influence quality of advice as well as keep track of changing dynamics in the industry.”
Adviser Ratings has entered into an agreement with the Capital Markets Cooperative Research Centre, supported by the federal government through the Cooperative Research Centres Program and by the Office of Science and Research of the NSW government’s Trade & Investment Department.
Adviser Ratings said a longer-term partnership is anticipated for full commercialisation.
