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Mutual fund investment data tracker Morningstar Inc. has introduced a managed portfolio program for financial advisors, a departure from its usual business of evaluating fund performance.

The Chicago-based company recently set up a new registered investment advisory subsidiary, Morningstar Investment Services Inc., which is to launch a managed group of fund portfolio programs in the fourth quarter.

Morningstar will offer the service to financial planners, regional broker-dealers, bank-affiliated advisors, insurance agents and CPAs. It will package funds in different investment plans that advisors can then offer their clients.

Mutual fund wrap programs like Morningstars Managed Portfolios allocate investors assets periodically among a broad choice of funds.

Similar programs are offered by such financial advisors as FundQuest Inc., Boston; SEI Investments Co., Oak, Pa.; AssetMark Investment Services, Pleasant Hill, Calif.; and Brinker Capital, King of Prussia, Pa.

Morningstar has not made a final decision on its fees for the service, but they would probably range from 15 to 35 basis points of advisors income from each account, depending on asset size, estimates Tom Florence, managing director for Morningstar. Florence will serve as president of Morningstar Investment Services.

The wrap program product, to be called Morningstar Managed Portfolios, will aim at advisors who have strong client-management relations and investment-planning backgrounds, says Florence.

Initially, Morningstar Managed Portfolios will feature mutual fund portfolios researched, engineered, and monitored by Morningstar Investment Services, as well as back-office operations and support services, he explains.

The service will provide client account-management capabilities and marketing and sales support through a Web site. Next year, Morningstar plans to add separate accounts managed by leading investment management firms to allow investment advisors to create portfolios using mutual funds and separate accounts.

Managed account products such as Morningstars are rapidly growing, says Paul Fullerton, an analyst with the Boston research firm Cerulli Associates.

“There used to be just a select few firms in the business,” he says.

Typically, these companies give financial advisors a combination of software, Web site access, client questionnaires and proposal generation. That makes them easy to use for financial advisors who feel they need expert guidance in selecting mutual funds for their clients.

Among the early companies in the field is SEI Investments, which increased its market share from 17.5% at year-end 1999 to 20.3% by the end of the second quarter 2001.

“Many advisors have terrific relationships with high net worth investors but dont have a great deal of expertise in designing investment programs,” explains says Carmen V. Romeo, executive vice president of SEI. “We offer a turnkey service that helps design investment programs and handles the paperwork, too.”

SEI manages $80 billion in assets, targeting high-net-worth and institutional clients through professional financial advisors and insurance agents.

“We hire outside money managers to manage our portfolios,” explains Romeo.

Mutual fund wraps grew in asset levels from $125.3 billion at the end of 2000 to $128.1 billion by the end of June, Cerulli found in a recent study.

For the managed-account industry as a whole, including fee-based investment brokerages and portfolio managers, managed assets climbed from $723.3 billion to $727.8 billion during the same period, Cerulli estimates.

Mutual fund wraps, representing 17.6% of that total, grew 10.7% in the second quarter.

Such growth is impressive at a time when fund expansion faltered and equity markets were depressed, Cerulli points out.

Some financial planners, however, think packaged mutual fund programs are a professional cop-out, says Barbara L. Steinmetz, head of Steinmetz Financial Advisors, Burlingame, Calif.

“The majority of advisors look on Morningstar as an independent research firm on fund valuation, not as a selection tool,” she says.

“I have my own approach,” Steinmetz says. “I like to involve my clients in the process. Having someone else do it may negate your own usefulness to clients.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 24, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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