Lonsec launches game-changer tools for advisers

Leading research house Lonsec today launched a new series of financial product ratings tools called BIOmetrics, which will allow financial advisers to better select and manage financial products to suit consumers’ individual investment needs.

The tools are the next step in Lonsec’s Better Investment Outcomes (BIO) program, which responds to the industry and government’s push to improve the quality of financial advice across Australia.

Lonsec BIOmetrics describe the unique traits, characteristics, features, benefits and risks of financial products – and are designed to complement and support Lonsec’s existing fund ratings.

Lonsec Research’s CEO David Erdonmez said the new tools will allow financial advisers to take the pulse of a fund and to place consumers at the centre of financial product advice.

“Government and regulators have reshaped remuneration practices and increased adviser obligations around personal financial product-based advice,” Mr Erdonmez said. “Today, financial advisers are required to better assess the ‘fit’ between the financial products they recommend and their clients’ needs, preferences and tolerances.”

As a leading source of fund research and ratings for advisers, Mr Erdonmez said Lonsec had long maintained that a strong fund rating assessed the quality of a product, but did not mean it was automatically appropriate for everyone.

“We are now arming advisers with the collateral to make more informed decisions in this regard,” he said

Lonsec’s BIOmetrics are divided into three categories: Features and Benefits, Aggregated Risk, and Cost. Within the Features and Benefits category, Lonsec will be ascribing rated financial products with BIOmetric assessments for:

• Complexity
• Tax efficiency
• Capital growth potential
• Income potential
• Liquidity, and
• ESG awareness

The tool suite will be rolled out over the coming months, with two metrics being launched today: Financial Product Complexity and Standard Risk Measure.

Financial Product Complexity

Financial Product Complexity is the first metric launched under the Features and Benefits BIOmetrics. Lonsec has utilised ASIC’s guidance and combined this with the firm’s own financial product and portfolio construction expertise to develop the concept and application of financial product complexity ratings.

Lonsec’s Complexity BIOmetric is scored on a five-point scale from Low through Low/Moderate to Moderate, Moderate/High and High.

Mr Erdeonmez said complexity was not necessarily a bad thing – but that it needed to be accompanied by higher potential rewards.

“There is a lot of misconception and fear around financial product complexity,” Mr Erdonmez said. “Higher complexity needs to be rewarded with some form of additional benefit and it needs to be matched against a client’s level of financial literacy and investment experience.

“Lonsec is proud to be the first research house to provide financial planners with product level complexity assessments. We believe that our complexity BIOmetric will prove to be timely and useful for financial planners as they seek better investment outcomes for their clients.”

Standard Risk Measure

The Standard Risk Measure BIOmetric is the first metric launched under the Aggregated Risk BIOmetrics category. Lonsec has taken the superannuation fund sector’s Standard Risk Measure (SRM) – a volatility derived measure of the expected frequency of annual losses over any 20 year period – and applied a range of additional factors and considerations to apply a risk band to each product (1 = very low risk to 7 = very high risk).

“Risk is multi-faceted and no one measure can be a catch all,” Mr Erdonmez said.

“The SRM is the beginning of the journey for our industry in providing more reliable, transparent and comparable information about financial products to consumers. The methodology underpinning its key tenets will no doubt be refined and evolve over time.”

Lonsec’s Better Investment Outcomes (BIO) program was conceived in 2013 and formally launched in 2014 with a white paper: It’s time to Co-Regulate the Financial Product Advice Chain. More information can be found here.