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An Expanding Galaxy

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The name Morningstar Inc. has been preceded by the words “mutual fund research firm” for so long that it seems as linked to that description as is the term “rosy-fingered” to “dawn” in Homer’s Odyssey. Yet the new and coming-soon tools on display at the Chicago-based company’s June investment conference make it clear that the firm is intent on striking further afield.

Want a database of separate account products that can be cross-referenced with other Morningstar software to determine a client’s overall exposure to a specific security, whether it’s held in a separate account, mutual fund, or as an individual stock? Want it to indicate account minimums for various firms, tell you which channels you can find each product in, and reveal exactly what steps each firm is willing (or unwilling) to take to provide portfolio customization and tax efficiency for clients? Just wait ’til August, when Morningstar will unveil Principia for Separate Accounts, its database of 1,700 products from 500 firms, says Ryan Tagal, product manager for the new tool. (Cost for an annual subscription will be $1,995, discounted to $795 for those who sign up by July 31.)

Wish somebody would organize all the stats on 529 plans into a searchable database complete with tools to help you explain the state tax implications of different plans to clients and illustrate possible asset growth outcomes? Just hold your horses ’til September, when Morningstar plans to launch its 529 plan tool–first as a Web-based application available on, then as a module of Morningstar Advisor Workstation, according to Chris Boruff, president of Morningstar Advisor Business.

Or perhaps you’re hunting for a database of ETFs or variable annuities? Just check out a subscription to Morningstar Advisor Workstation. The info on ETFs has been available since May; the stats on VAs have been published since January.

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.”


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