I believe that allowing others to choose their own Hero rank would probably be better, as long as you limit the amount of S-Ranks. This way, no one feels the need to have a dick-measuring contest. Those are never fun, haha. I do, however, think that you should eventually assign the appropriate rank to the heroes that are Unranked. 

Hopefully, for the sake of character development, everyone doesn't try to start off at the top of the ladder.

I, personally, am going Unranked because Izuma hasn't really made himself known in the city yet. He hasn't even taken the Hero Association Exams.