The retail research sector was late yesterday assessing the potential ramifications of van Eyk Research’s move into voluntary administration on Monday afternoon, with more pessimistic observers suggesting it could spell the beginning of the end for the research house.
A rival research business executive, who spoke to Professional Planner on condition of anonymity, said it was difficult to see how van Eyk Research could recover from its current predicament.
“It goes to the heart of your credibility, and your ability to select managed funds,” the executive said.
Van Eyk Research has been a longstanding opponent of the research industry-standard user-pays rating system – under which the issuers of financial product pay a research house to produce a report and a rating on a product – citing the conflicts of interest that this structure creates.
“Van Eyk has been a big voice against the issuer-pays research model, but only on the basis that the research business was supported by the funds management business,” the executive said.
With that support now apparently gone, there are questions about the ability of the research business to support itself financially, and a belief that if it were to emerge from administration it may have to convert to the same issuer-pays structure as its competitors.
The chief executive officer of van Eyk, Mark Thomas (pictured), said in a statement on Monday that the company remained “absolutely committed to providing our client’s with a seamless quality research and consulting service and it will remain business as usual for van Eyk in delivering on this commitment while the VA process is underway”.
Smaller licensees
The greatest impact of the loss of a key player in the research space is most likely to be felt by the smaller licensees that do not operate in-house research teams.
Another research executive told Professional Planner: “The bigger groups do have their in-house research which they could maybe rely on a little more, so it may well then affect the smaller groups that don’t have that resource.”
“You could see some of the boutiques taking on a little bit of risk and doing their own,” the executive said.
“That’s a dangerous thing, but if the costs do go up, there’s no doubt in the world the small licensee has been hammered on costs from a number of angles…so they may undertake more of their own research.”
Competitor research firms yesterday reported receiving inquiries from van Eyk Research clients, with one of the competitors confirming that it had “secured” a van Eyk client yesterday, and another one prior to van Eyk entering voluntary liquidation.
ASIC not concerned?
The executive said the corporate regulator, the Australian Securities and Investments Commission (ASIC), was unlikely to be concerned about the sector losing a participant.
“From that perspective, and through the [Regulatory Guide] 79 process, and the initial consultation paper, I think the regulator is of the view that they would like to see less research groups than more,” the executive said.
“The greater the concentration of research you have, the more likelihood or ability for research groups to operate on a viable [financial] basis.”
Another executive added: “There’ll be questions asked around the business model of providing product research.”
“Some of those research companies I listed above are paid by the product that they’re reviewing, which you could argue is a conflict of interest…but that exists,” the executive said.
“There’s going to be more debate around a sustainable business model for product research.”
Competition
The impact on competition in the sector was also being examined.
“There is a significant need for product research in retail advice,” an executive said.
“There are a lot of gaps, I believe. I’m very hopeful that van Eyk research doesn’t disappear, because I think there are a lot of gaps – whether it be ETFs, LICs, industry super funds – I’d love to see greater product research in that area [of industry super].
“FoFA has triggered advisers to advise in those areas a little more, and there’s been more client demand there, but without the good quality qualitative research and those particular product types, it’s tough to [advise] in that area.”
This article has been edited to clarify that Mark Thomas issued a statement on Monday.
