Leading research house Lonsec today launched its next four Better Investment Outcomes (BIO) metrics – three fee BIOmetrics and an ESG BIOmetric – to help financial advisers seek better investment outcomes for their clients.
Launched earlier this year, Lonsec’s BIOmetrics are designed to support advisers in having deeper conversations with clients and to make it simpler to assess if a financial product is fit for purpose based on their client’s needs, preferences and risk tolerances.
Amanda Gillespie, Joint CEO of the Lonsec Fiscal Group, said with the recent shake up of financial advice and rising negative consumer perception of the sector, financial product advice must now be better and the research to support that product advice must also shift.
“We’re helping advisers on this journey by making it simpler to determine investor suitability for specific products and strategies and better identifying the appropriate and safe use of financial products,” Ms Gillespie said.
The new series of financial product ratings are designed to complement and support Lonsec’s existing fund ratings.
A new way to assess fees
Traditionally, product fees have been expressed by backward-looking metrics such as Management Expense Ratio or the Indirect Cost Ratio. Lonsec’s Fee BIOmetric transforms the assessment of financial product fees by looking forward, calculating total fees based on expected return, bringing a sense of comparability to the fee discussion.
Lonsec’s Fee BIOmetric introduces three new fee indicators: fees as a percentage of expected return; fees relative to peer group; and fees relative to asset class. Each is scored on a five-point scale from low through moderate to high.
Ms Gillespie said, as a leading source of fund research and rating for advisers, Lonsec was proud to be the first research house to provide financial advisers with forward looking, peer relative financial product fee assessments.
“There has never been a time when fees have come under greater scrutiny and this trend shows no signs of abating,” Ms Gillespie said. “However, in current industry fee reporting, fees are reported on a lagged historical basis and are not expressed relative to return or to competing alternative options. By providing a forward looking view that compares like products, lower fees should no longer be used as a sole justification for product recommendations.”
“Investors should seek to pay the lowest fees that will allow them to achieve their desired outcomes. For example, higher fees can be accompanied by higher potential return or better outcomes. As such, financial advisers, and their clients, should consider ‘value of money’, not just the lowest fee, when providing financial product advice,” Ms Gillespie said.
Embracing ESG in your investment decision
Lonsec’s ESG BIOmetric is a graded measure of the degree of Environmental, Social, and Governance (ESG) awareness practiced by the investment manager with respect to the specific product under review.
It is designed to provide financial advisers with a consistent way to evaluate an investment manager’s approach to ESG.
“ESG awareness is no longer just a values based consideration when it comes to product recommendations,” Ms Gillespie said. “ESG investing also aims to improve investment performance. There is growing evidence showing that incorporation of ESG factors into the investment process may offer investors potential performance advantages.”
“Our ESG BIOmetric sees Lonsec brings institutional quality ESG assessment to retail investments for the first time.”
To date, Lonsec has launched six BIOmetrics: Complexity, Standard Risk Measure, ESG Awareness and three Fee BIOmetrics. A further six BIOmetrics, covering financial product risk, return and features, will be launched during the second half of 2015.
Source: Lonsec
