From the February 2004 issue of Investment Advisor • Subscribe!

February 1, 2004

A Better Workstation

B/Ds love Morningstar's baby, but RIAs are not so sure

The new, improved Morningstar Workstation is likely to be well received by independent B/Ds and their reps. But it may be less appreciated by RIAs. Morningstar Workstation, originally released in August 2001, was the first step in building on Morningstar's category-dominating mutual fund research and analytics tool, Principia, by distributing the software as a Web-based ASP and adding a sophisticated investment goal-planning module. The new version incorporates yet more functionality into Workstation, including customer relationship management, customizable investment policy statements, and new portfolio analytics.

For B/Ds, Workstation could be an important addition. B/Ds like Web-based applications because they must monitor their reps for compliance purposes, and keeping the data on a B/D-owned server tightens a rep's dependency on the firm.

Morningstar customizes Workstation to a B/D's need--including, for instance, the goal-planner but not the CRM module, or providing access only to certain securities databases, such as funds, variable annuities, ETFs, closed-ends, and stocks. UBS PaineWebber, A.G. Edwards, American Express, and Raymond James Financial Services are among 60 institutions to have customized Workstation for their reps, and Morningstar is now integrating Workstation with StatementOne, the most widely used account reporting tool among independent B/Ds.

The combination of StatementOne with Workstation will mean reps can call up research reports and perform analytics on client holdings more easily and with less data input.

Workstation would be a great new toolset for most independent registered reps. Most are not using any financial planning software, much less one that is goals-based and that uses Monte Carlo simulations for investment risk. Most reps have not committed all of their client contact information to a database such as Outlook, GoldMine, or ACT!, much less Junxure, Junxure-i, or ProTracker. Many lack easy access to a research tool like Principia or analytic tools of that caliber.

Moreover, Workstation lists funds similar to ones in a portfolio, lets you create and store model portfolios that can be used as the foundation in building all your client portfolios, and allows you to personalize template investment recommendation documents for your clients and prospects. Most importantly, reps and B/Ds benefit from enterprise pricing when putting hundreds or thousands of people on customized implementation of Workstation. Reps are likely to pay little or nothing for the application. Workstation can be a quick way for a B/D to elevate the way its reps practice, especially as Morningstar integrates with more clearing firms and other popular professional software applications.

Yes, But...

For most RIAs, however, Workstation is not nearly as attractive. "There was no functionality so compelling as to even begin to motivate me to make the huge investment of time and money needed to migrate my data," says Curt Weil, an advisor in Palo Alto, California, who represented one of the 15 RIAs who participated in an hour-long demonstration of Workstation. "I'm not sure Morningstar gets RIAs."

For advisors like Weil, who for years have been using sophisticated planning, portfolio management, and customer relationship management tools, Workstation would be a step down. Its goals-based planning module is not nearly as well developed as software from MoneyGuidePro, NaviPlan, or MoneyTree. The CRM pales in comparison to ACT! or GoldMine, much less Junxure, Junxure-I, Act4Advisors, or ProTracker. And the analytics, while much stronger than the planning or CRM modules, may not be compelling enough to make an RIA want to switch from Ibbotson Portfolio Strategist or AdvisoryWorld--especially considering the price RIAs must pay.

Workstation costs $5,000 per seat. With most advisors paying a discounted price of $1,000 or less for Principia with the mutual fund and stock database, Morningstar's flagship research and analytics software for RIAs, it's unlikely RIAs would fork over $4,000 more to buy CRM and goal planning tools inferior to what they now use. For RIAs using Morningstar's portfolio analytics--importing Schwab Centerpiece and Advent Axys reports into Principia's portfolio analytics module--the few new analytical bells and whistles won't alone be enough of an incentive to pay $4,000 a year more.

After the Workstation demos, I e-mailed a survey to the 15 advisors. Thirteen responded. None said Workstation was worth up to $10,000 a year; four said it was worth up to $5,000; eight said they'd buy it at $1,000 or less; and one said he would not buy it at any price.

"To replace AllocationMaster or my CRM, they have quite some work ahead of them," says Dean Giella, who runs a Jericho, New York, RIA and was one of those saying he is likely to adopt Workstation at $5,000 or less. "RIAs are used to having the freedom to choose best-of-class software. It's a tall order to provide total one-stop shopping in all these categories."

Morningstar is going to have to make an important business decision about selling customized versions to RIAs through custodians. It's unlikely TD Waterhouse, which plans to integrate Workstation into its back office, or any other custodian, will allow assets from other custodians or B/Ds to be included in its implementation of Workstation. So only RIAs holding all of a client's assets at a single custodian would be able to use it.

Since RIAs generally prefer not to rely on a single custodian, many RIAs will prefer that Workstation take downloads from multiple custodians. Morningstar could perhaps do this by interfacing Workstation with an account aggregator. However, that would undermine Morningstar's ability to sell custom Workstation implementations to custodians. Advisors also worry that if they fire their custodian in five years, or if it is acquired, that they might lose all that aggregated account data. But the challenges Morningstar faces with RIA adoption should not diminish the fact that it seems committed to building Workstation into a viable contender for RIAs.

Reprints Discuss this story
This is where the comments go.