Years of complaints by financial planners over the sorrowful state of mutual fund research seems to have finally hit home. The biggest gain in all categories of our 2004 Planners’ Report Card came in the quality of research: the average for the 16 companies surveyed jumped 1.2 points, to 6.8 out of 10.

Of the firms Investment Executive interviewed, six say their companies outsource research or don’t do research at all, and six have internal research departments, although some of those departments consist of only two or three people. For example, Berkshire Investment Group Inc. has four chartered financial analysts on staff, and Assante Corp.‘s and IQON Financial Inc.‘s research departments each have two people. Dundee Wealth Management Inc. of Toronto appears to have the largest department, with 14 stock analysts and one dedicated mutual fund analyst.

The most popular research rated by planners was material that held educational or other client-focused value. The origin of such material varies; some planning firms generate their own and others are almost totally reliant on research provided by fund companies.

Many planners don’t seem to care where material originates as long as they have it for their clients.

PFSL Investment Canada Ltd., for instance, scored the highest for mutual fund research, with an average rating of 8.9 — up from 8.3 in 2003 — despite the fact it has no in-house research to speak of. “I don’t understand how our research was rated so high last year,” says one Quebec planner.
“We don’t have research.”

“Generally, we don’t do any mutual fund research,” says Jeff Dumanski, Mississauga, Ont.-based PFSL’s executive vice president of marketing. “When new funds are launched, we go to the prospectus, review those funds and assign a risk score to it.” He says the company does business with fund dealers that have a reputation for performance, quality back-office and client services. “In turn, this supports our advisors,” he says. “But we don’t do any research ourselves.”

At Assante, planners say research is great for the company’s proprietary products but non-existent for all others. “It’s two different stories. Its own stuff on its own proprietary product is great, but that’s all it has. If you want other stuff, it doesn’t have any,” says a West Coast Assante planner.

“The majority of our research is done internally by Garnet Anderson, vice president of investments,” says Assante president Joe Canavan. “A lot is changing, especially with the hiring of Brian Moore from Mercer Management Consulting. The value he brings will be manifold,” he adds. Moore will help in the design and redesign of Assante’s products.

Firms in transition made some of the biggest strides in research. Worldsource Financial Management Inc. has focused in the past year on rebuilding its offerings and attracting new advisors.

Now the company outsources research to a chartered financial analyst and has invested considerable time and capital in the firm’s online offerings, including its “market watch site” that focuses on particular fund managers, industry sectors and different asset classes.

“We try to pick a topic, such as income trusts or gold, and we provide an educational aspect in the research we give back to advisors,” says Anthony Stockley, the firm’s Markham, Ont.-based president and COO.
“As advisors ask us to look into other product areas, we do an impartial analysis and say: ‘When you’re dealing with hedge funds or certain products, here’s what you have to watch for.’ It’s gone over well with our advisor base.”

The firm still has a long way to go, however, in garnering kudos for its efforts. Despite the large jump from 2.4 in 2003, it still placed second to last in the research category with an average score of 5.7.

The biggest movement in research scores went to Laurentian Financial Services, which jumped to 7.1 from 3.5 last year. Overall, the top three-rated firms were PFSL, Dundee and Manulife Securities International Inc.

IQON was the only firm to see its research rating drop, slipping to 7.4 from 8.1. The firm still placed fourth in the fund research category. It is one of the few firms with chartered financial analysts on staff.

An IQON planner in Ontario notes: “Research is available, but it’s not the focus of firm.”

Perhaps because of its larger population of
brokers, Dundee is less reliant on fund manufacturers for research development. It has one of the largest research departments of the planning firms surveyed, with 14 analysts covering about 140 companies on the securities side, and James Gauthier as its mutual fund-only analyst.