Standard & Poor's is trying for a perfect "10" on the balance beam routine when it comes to the recent fund industry scandals. Monday morning the fund rater once again said that it is too early to make any judgments about the funds tied to the Spitzer scandals. It also took great pains to explain why it is fairer to treat each fund as an individual and not rush to paint the Spitzer-tainted complexes with a broad brush.

Unless the unit of McGraw-Hill can put Nadia Comaneci on retainer (last we heard she was living in Oklahoma), it runs the risk of losing its credibility with the judges (in this case investment advisors) even if it manages to not to fall off the beam all together.

The fund rater explained itself by writing that "... given the fact that the situation has obviously evolved, much still remains to be learned about the breadth and depth of this investigation - we may for example learn more about any role played by intermediaries and distribution channels - and we remain committed to our initial position."

It then begged off changing its recommendation on Janus, One Group, Nations Funds, and Strong on the excuse that "it is difficult to draw specific conclusions" with the amount of information currently on hand.

Morningstar, on the other hand, is having no problems making those "difficult decisions." The Chicago fund tracker is unabashedly taking a pro-investor stance by putting all of the Spitzer-tainted funds on probation while the facts come out while Reuters' Lipper unit is hiding behind the numbers. (Lipper has explained that its ratings are entirely quantitative and based on each fund's investment performance).

While fairness is nice -- and even necessary in the courtroom -- it is not likely to be high on the list of attributes investment advisors are now seeking in the party recommending funds for their clients. There are, after all, literally thousands of funds from which advisors can choose, so why should they stick with funds that may be less than honest? Especially as advisors have a fiduciary duty to their clients.

After all, in a universe of 300 plus fund advisors why hire any that even has a whiff of scandal about them? There is always another fund with as strong a track record to move the money to.

S&P does bury some good advice in the many explanations it gives for its equivocation. "Sweeping generalizations and impulsive decisions," says S&P "... may lead an investor to move from one fund family to another based on incomplete information, only to find that he or she has moved from a fund that was not affected to one that was."

What it fails to realize, though, is that advisors and investors are turning to it to find those fund firms that are clean. Surely after all of its analysis it has some thoughts on the subject.

Not only is S&P shy about coming to a premature judgment of any fund, it is also abdicating the leadership podium to Morningstar by calling on fund sponsors to lead the effort to clean up the current mess.

S&P also argues that "each fund should be judged on its own merits and circumstances" and notes that "many fund sponsors hire other independent money managers who do not have direct relationships with the sponsor's portfolio managers and analysts and may not be affected by any issues relating to the sponsor."

This, of course, is a red herring. None of the funds targeted by Spitzer so far were subadvised. More importantly, the issue raised is not one of investment competence but one of ethics. Hard lessons have shown that ethical examples spill over internal walls.

This passiveness may come as a letdown to advisors seeking a source of authority on the issue, but it may be unavoidable for the unit of a Fortune 500 firm that makes the bulk of its revenues by selling bond ratings to corporate America and not by putting investors first.

What S&P needs remember, and this is the difficult part of its job, is that its reputation only goes as far as it is willing to stick its neck out. An advisor unwilling to make the difficult call is no advisor at all. 

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