Morningstar: Is it the Silver Bullet?
If process is scrutinized more closely than results, has Morningstar achieved silver bullet status? Our analysis reveals that cost and popularity alone do not justify that claim.
David Witz1 min read209 wordsA Fiduciary is evaluated on the basis of process not results. As the court stated in DeBruyne vs. Equitable Life Assurance Society, “The focus is whether the trustees, at the time they engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment. ERISA requires prudence, not prescience.”
Is Cost a Factor?
If popularity is a measure of silver bullet status, Morningstar is a clear winner. Unfortunately, it seems highly unlikely that popularity could be successfully used as criteria in defense of an investment selection process.
Advisors and investors have easy access to free Morningstar information. However, the best information Morningstar has to offer is available by subscribing to Morningstar Principia Pro at approximately $1200 per year. For many investment advisors, this is the only analytical tool relied upon for determining investment recommendations.
Morningstar Strengths and Weaknesses
Our analysis reveals that Morningstar is a cost effective investment research tool deserving a place in most every investment advisors analytical tool box, but it does not achieve silver bullet status. Instead, Principia Pro is a great beginning point, as Morningstar has acknowledged, for constructing an investment menu.
The retirement plan sponsor that relies upon Morningstar Principia Pro exclusively or an advisor that uses it exclusively should reconsider both their process and their advisor relationship.
