DFM Ratings

24 March 2016

Fraser Donaldson – Insight Analyst (Investments)

There has been a lot of negative press about financial service product and service ratings of late. I can’t answer for other organisations, but I do feel a little self-examination is a good thing. It has led me to take a look at the ratings we do for DFMs and see if there are any improvements we can make before we start work on the 2017 ratings.

I thought it would be informative to give you some detail of how we go about our DFM ratings and the yearly cycle we go through before release in February of each year.

The first thing to note is that ratings are a permanent item on our weekly meeting agenda. Feedback, suggestions and potential improvements are aired at every one of these meetings. So, it is fair to say we are examining our process and approach on an ongoing basis.

Defaqto’s DFM ratings go through a yearly cycle, with the following year’s ratings under consideration almost as soon as the current years ratings are calculated. The yearly cycle looks like this:

  • 1st February: Ratings go live
  • March: First formal discussion about potential changes for the following year
  • June: Taking in to account provider and adviser feedback, regulation and emerging themes, discussion paper is published outlining suggested changes and/or improvements to the ratings criteria and methodology. Feedback and further discussion is invited.
  • September:  DFM’s are invited to an open roundtable forum where they have the opportunity to question Defaqto on the proposed changes outlined in the discussion paper, as well as any further suggestions made since discussion paper publication
  • September: taking in to account feedback at the roundtables, preliminary criteria and scoring boundaries are set for the next set of ratings.
  • October 1st: A preliminary criteria document is published showing likely criteria and scoring boundaries for the star ratings (1 to 5).
  • October to January: Any additional data required is collected. It is still possible for ratings criteria and boundaries to change during this period, although it would take exceptional circumstances to do so.
  • January: Second half of January a snapshot of data is taken, ratings calculated and a final criteria report published which sets both the criteria used and the scoring boundaries for the ratings from 1st February.
  • February 1st, ratings go live.

It is important to note that from 1st February both criteria used and scoring boundaries for the star ratings are fixed until the following 1st February. It is equally important to note that although criteria and scoring boundaries are fixed for the coming year, the ratings process is live. In other words, should a provider make changes in their proposition during the year this would have an immediate effect on their overall score and potentially change their ratings up or down.

It is worth noting that we rate all propositions on our database (currently 188 propositions from some 80 firms), which is structured to be as whole of market as we can make it. It is then up to the DFM firms to decide whether they wish to license our star rating logo, once they learn what the ratings are.

We believe our process is robust and, importantly, transparent. There are no smoke and mirrors involved, pay to play or favouritism. We see ourselves as neutral in the whole process and certainly open to any suggestions that will improve our ratings


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