Under the bonnet of fund research agencies: The Adviser Centre

The Adviser Centre may soon benefit from the scale that comes with acquisition

We conclude our series looking under the bonnet of fund research agencies with an examination of The Adviser Centre.

Like other agencies, The Adviser Centre was launched shortly after the RDR came into force to provide investment research and consultancy to advisers. At the time, the market was dominated by Morningstar following its acquisition of OBSR.

The Adviser Centre team, led by ex-OBSR investment director Peter Toogood, was part of fund provider City Financial until October 2016 when it was acquired by Embark Group, a consolidator of financial services businesses.

Embark is also the owner of Sipp provider Hornbuckle and adviser platform Avalon. It is building a pool of businesses to support adviser firms with due diligence for funds and outsourced solutions and, to this effect, has also recently acquired multi-manager research specialist Scopic Research and DFM research business Discus.

We think The Adviser Centre will soon start to benefit from its parent company support in terms of building brand awareness and penetration among advisers. This is important: according to our recent report, The Influence of Research Agencies, the agency is only used by 1 per cent of advisers, although it has more than 900 registered adviser users.

The business’ revenues come from licensing arrangements with fund groups, so its research is free for advisers.

However, most research agencies have diversified their sources of revenues and we expect The Adviser Centre to do the same.

The FCA may welcome more revenue diversification, having expressed a concern that advisers may not be aware of a potential conflict of interest with fund groups that pay marketing license fees to use research agencies ratings.

While it is true a conflict of interest may exist, our research shows most advisers do not see it this way or are simply not concerned about it. For some, the ratings are just one element of their fund selection process.

We can see The Adviser Centre competing with the likes of heavyweights FE and Morningstar by providing an integrated package of research and tools through a single platform, especially once a model portfolio service is added to the offering later this year.

The Adviser Centre’s research focuses on providing a qualitative assessment of the quality, utility and value for money offered by actively managed funds available in the UK. For this, the agency builds three lists of “Recommended”, “Established” and “Positive Watch” funds.

The Recommended list is the main one, consisting of around 110 funds across all Investment Association sectors, the Established list is a selection of funds at or near soft closure, while the Positive Watch list looks at funds that have the potential of gaining Recommended status over time.

Advisers were already able to access Scopic’s multi-manager research through The Adviser Centre website prior to its acquisition in January. This acquisition, in conjunction with that of Discus in March, indicates a clear focus on wider investment solutions research.

According to our data, 47 per cent of advisers who recommend multi-manager funds use a research agency to inform their selection and due diligence processes.

This is lower than the 61 per cent of advisers who use research agencies overall but it does show the demand for information on these products.

The coverage of The Adviser Centre’s research does not currently include ETFs or investment trusts. ETFs are unlikely to become part of the offering because of the agency’s focus on actively managed funds but we think coverage of investment trusts would make sense to complement the existing research proposition.

We are positive about the growth opportunities for The Adviser Centre if it commits to building the presence of its research package on adviser platforms like some of its competitors have done. The launch of the model portfolio service should be a catalyst for accelerating that process.

Rodolfo Crespo is senior analyst at Platforum.