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Monday, March 20, 2017

M* Is Doing What?

News summary by MFWire's editors

Morningstar launching their own funds feels a little bit like an Olympic judge deciding to participate in the games — it's weird.

Joe Mansueto
Morningstar
Chief Executive Officer
The rating agency plans to launch nine sub-advised funds for use in its managed portfolios. The funds will be available to financial advisors, but not the general investing public.

The move is reminiscent of when regional B-D Edward Jones launched its first Bridge Builder fund for use in its Advisory Solutions program in 2013. This also isn't the first time a research shop has entered the fund biz — NY-based Value Line, founded in 1931, launched its first funds in 1950, Financial Planning notes.

M* has selected Stradley Ronon as its legal counsel. An SEC filing notes that the hunt is still on for third-party help for fund administration, accounting, transfer agency, custodial, compliance, shareholder, and distribution services to the funds.

Morningstar expects the move to lower costs by around 20 percent and simplify the management structure for its managed portfolios.

"Our clients, their investors, and Morningstar share the benefits of this exciting move," states Morningstar.

But not everyone is feeling the excitement just yet.

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, tells InvestmentNews, "Morningstar is trying to capitalize on their brand, but in doing so they are also shining a spotlight on their objectivity."

Even advisors are torn, according to reports from Financial Planning. While some see this as a huge conflict of interest in a overcrowded space, others say that if the funds perform well, they have no problem recommending them to clients.

And what happens when, in three years, these funds are eligible for star ratings?

"... [If] they do well that could create a conflict ... [If] they don't do well it raises the question of whether they really are a viable alternative to what they had before," says Rosenbluth.

Barron's and FinancialAdvisor also reported on this story.  

Edited by: Katy Golvala


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