From the September 2007 issue of Boomer Market Advisor • Subscribe!

Garbage in, garbage out -- Be wary of your fund analysis provider

The advantages of mutual funds are well known and won't be restated here, but with so many choices to make (over 10,000 different mutual funds), how does one make sense of it all? At one time, desktop software was the best way to evaluate each fund, but the rise of Internet means more choices. There is no shortage of mutual fund screeners and information available to advisors, some for free and some for fee. But with these tools come questions. Is past performance the best indicator of future returns, does a particular manager of a fund have the greatest impact, or is the answer a combination of the two? We don't have space for an in-depth analysis of every tool available, but I did speak recently with a number of companies that provide evaluation tools to advisors. They gave me an update on their current product lines, and a glimpse at the future.

Morningstar needs little introduction. They support a number of different products for advisors and investors. In speaking with Chris Boruff, managing director responsible for business development and product management with the Advisor Workstation and Principia product lines, several significant enhancements have been made to both.

With Principia, Morningstar added a new asset allocation module that assists advisors in their efforts to develop asset allocation strategies and optimize client portfolios. Morningstar's Advisor Workstation Enterprise edition also added a new defined contribution module to help advisors who advise plan sponsors. This new module will compare investment lineups within 401K plans, which advisors view as increasingly important to investors. One future enhancement worth noting is an upgrade to the financial planning capabilities within the Advisor Workstation Office edition. Morningstar's plan is to include a retirement planning module, which will help advisors create strategies to ensure income generation throughout the life of a client.

The Rankings Service is another mutual fund research provider that bases its recommendations on "buy the manager, not the fund." Jim Lowell and Bud Sheppard started TRS a few years ago to address what they saw as a problem with traditional mutual fund research -- that it doesn't take the impact of fund manager changes into account. They are currently creating "The Rankings Service -- Family Rankings and Scorecards," which will aggregate of individual manager records and allow advisors to compare the overall performance of fund families across different asset classes. Similar to what they have done with individual manager rankings, they believe this new solution will provide more transparency at a fund family level. TRS is also in the process of creating indices that will aggregate the best performing holdings by the best performing managers.

One thing to remember -- there are many mutual fund analysis providers, and buyer beware. Like most things in life, you get what you pay for. Morningstar and TRS are two quality firms that hold up to scrutiny.

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