The idea of having an online financial adviser rating service seems to be flavour of the month in the Australian financial advice industry at the moment. Although my comments below are specific to a financial adviser rating system, they are applicable broadly in relation to a rating service for almost any professional service provider.

I think there are some potential benefits of having such a service. An important one is that it might help clients identify advisers to steer away from. If, of course, the adviser can’t simply opt-out of the service if it doesn’t work in his or her favour. It’s a big if: I find it hard to conceive of a single service getting to the stage where it acts like a “passport”, in the sense that a client simply won’t engage with an adviser unless they’re on the service.

But there are some major issues with such a service. For one thing, clients are often not in a good place to determine whether they have a good adviser or not. I think I have a good family doctor, for example, but without getting a second opinion on every malady that we present, we can’t really know for sure. It’s simply the nature of an asymmetric relationship. 

If the idea gained traction, my suspicion is that the advisers who get the best ratings won’t necessarily be the best advisers. It will be the advisers who can create the best perception of being a good adviser. In a sense, it will be the advisers who are the best salespeople. 

I can think of a number of excellent advisers who probably wouldn’t go out of their way to ask clients to rate them on such a service. I know a number of advisers who are not as good who would be very successful at getting clients to provide them with favourable ratings. 

It’s even possible that a person could be a horrible adviser from a technical perspective, but because of their ability to manage client perceptions, could rate very highly. An adviser who recommends very speculative, inappropriately risky, investment strategies, may also rate very highly – up until the point that things change. 

In this sense, I would consider any such rating system with a grain of salt.

Sonnie Bailey

Sonnie is an Authorised Financial Adviser (AFA) and former lawyer with experience in the financial services and trustee industries. Sonnie operates Fairhaven Wealth (www.fairhavenwealth.co.nz).

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