The quality of mutual fund research does not get high marks at most of the 14 firms surveyed in this year’s Planners’ Report Card, but there are exceptions.
The average rating across all 14 firms in this year’s survey was just 5.7, way down from 7.4 last year but in line with 2000’s 5.8. IQON Financial Inc. of Winnipeg took top marks with a 8.3 rating, out of 10, and was the only one of the 11 firms that were surveyed in 2001 to see its rating rise this year. However, Investors Group Inc. of Winnipeg, PFSL Investments Canada Ltd. (a division of Primerica Financial Services Ltd.) and IPC Financial Network Inc. all did well, with ratings above 7.
IQON’s strong showing may be due to the fact that its director of research, Henry Hudek, is one of the company’s founders. Each day, Hudek gets a couple of dozen phone calls, e-mails or faxes from advisors looking for recommendations and information, and he usually manages to respond within 24 hours — or, at worst, within two days. IQON is currently looking for another person of Hudek’s calibre to share the workload.
Hudek produces an impressive body of research, including monthly commentaries for advisors, quarterly commentaries aimed at clients, an annual mutual fund report and occasional studies, as well as “ad hoc” notes when needed. Hudek got a note out very fast after the Sept. 11 tragedy and followed it up with another. The fact that he wasn’t inundated with calls suggests that he provided what was needed.
The job, he says, is to put things in perspective. With the clients’ quarterly, he tries to “bring them back from the edge,” where stories in the financial media have put them. The job is easier with the advisors. “Most of them are extremely experienced. We’re fairly picky about whom we let in,” he says. For them, he highlights what has happened and provides context.
Risk calculator
IQON advisors also have access to Morningstar Canada‘s mutual fund data, including special risk calculations that are done solely for IQON based on formulas IQON provides. These calculations give IQON’s classification for the asset class covered by the fund and a risk rating from zero to 10 (with 10 the most risky) for both the asset class and the particular fund involved. Because clients’ risk tolerance is also rated from zero to 10, it is easy for advisors, and the compliance people, to ensure that investments are suitable. The company has developed a module to do risk/return analysis of portfolios that it hopes will be available to advisors by the end of 2002.
The annual mutual fund report, sent out in November, doesn’t cover the entire universe but is very comprehensive, covering about 40 fund families and 700 funds, with an emphasis on volatility as well as return. It describes the pros and cons of the funds and indicates which funds in each asset class are doing a reasonable job.
Even with those planning companies scoring high, some advisors gave very low ratings for mutual fund research. One challenge faced by companies making a lot of acquisitions, says Chris Reynolds, IPC’s vice chairman, is ensuring everyone knows what is available.
Both IPC and Investors Group focus their research on their own funds, with advisors given access to outside sources, including Morningstar, for information on all other funds. IPC has two research analysts who prepare a manager “spotlight” or economic commentary about every two weeks, organize a monthly conference call with one of the analysts (available for playback) and post a variety of relevant material on the Web site. The analysts are also available to talk with advisors.
At Investors Group, the seven-person portfolio strategy team does the research and handles questions. Two members are located in the advisors’ call centre and can usually answer about 90% of the questions, says director Aaron Margolis. More complex queries are forwarded to the head office group and sometimes result in articles posted on IG’s internal Web site. Sometimes, questions concern the company’s asset allocation software, Managing for Capital Growth, which includes model portfolios developed by the group. The models allocate by asset class, so advisors call to discuss what funds might be appropriate. “We try not to steer, to be as objective as possible,” says Margolis.
The group also puts out a monthly magazine, Fund Pulse, which provides quantitative data on all IG funds. It is both mailed and available online. There is also a weekly market commentary with contributions from a revolving list of managers covering the various asset classes.
The group organizes about 500 visits by managers , including those managing outside funds used in IG products, to branch offices. This works out to about five visits per office a year. IE