An Expanding Galaxy

Or maybe you’re looking to farm out the management of client assets. In that case, there’s the Morningstar Managed Portfolios program, which since earlier this year has provided advisors with a menu of 10 portfolios of mutual funds managed by Morningstar Investment Services, an SEC-registered investment advisor and wholly owned subsidiary of the company. Containing six to twelve funds, each portfolio is built specifically for taxable or non-taxable money, and is tailored to five gradations of risk, from “conservative” to “aggressive growth.” Advisors are allowed to charge up to 1.5% of assets for the service, of which Morningstar pockets 0.2% to 0.4%.

Fifty firms, including firms with anywhere from three to 1,800 employees, have signed up to provide the portfolios through their advisors, says Tom Florence, president of Morningstar Investment Services. “Our goal is to have 10,000 advisors on board by the end of the year, and we already have 7,500,” he notes, “so we’re actually ahead of schedule.” And although it’s too early to have useful performance numbers to evaluate the new program, the attendee-packed information session held at the June conference suggested that more converts are yet to come. Florence declined to say how much money is currently being managed in the program, saying only that “we’re currently bringing in about $1 million per day [in new assets].” He admits he’s fielded some questions from advisors worrying that Morningstar will offer the managed portfolios to clients and cut them out of the loop, but responds: “So much of Morningstar’s work in the future will be driven by advisors, I can’t see why we would want to swim upstream against that”–a sentiment echoed at the conference by Morningstar Managing Director Don Phillips.

The other question Florence fields often from advisors, he says, is simply, “What makes you better?”–in other words, why should advisors choose managed portfolios over other firms providing turnkey asset management services? His answer, he says, is that he can pick investments from 13,000 funds, he can monitor style drift and call up managers (and get his call answered) if he sees questionable moves, and “I can get Bill Gross to manage our bonds–and not as a subaccount. This is the money he’s running with his name on it, so you know he’s taking it very seriously.”