Search the News Archive

Morningstar Comment Letter to SEC: Fiduciary Rule Should Be Largely Positive for Investors

"[E]ven among experienced investors who hold investments outside of retirement accounts, most investors do not understand the distinctions between broker-dealers and Registered Investment Advisors and the conflicts of interest some financial advisors may have when recommending investments. There has also been a good deal of coverage of the recent [DOL] 'Fiduciary Rule,' mostly reporting that financial advisors are now acting in the best interests of their clients, even if they were not before. Further changes in the standards would likely further confuse investors, who have absorbed the news about the Fiduciary Rule."

MORE >>

Morningstar May Be Upending the 401(k) Industry by Putting RIAs in Charge and Making Participants Pay Fees

"What the Chicago wealth conglomerate is doing is nothing short of a dramatic overhaul of 401(k) plumbing with help from digital technology and demand from RIAs. Rather than a semi-reluctant B2B transaction where employees are charged hefty managing fees indirectly through their employer, this construct edges toward an open B2C transaction where employees do business directly with an advisor who makes decisions and is accountable for them."  MORE >>

Morningstar: The Referee Who Designs the Insurance Playbook

"For years, Morningstar has positioned itself as the independent umpire of the mutual fund world.... If Morningstar approves it, fiduciaries feel safe. But buried in Morningstar's own SEC filings is something most plan sponsors, consultants, and courts do not realize: Morningstar is deeply embedded in the business of helping insurance companies design retirement plan investment menus built around CITs, annuities, and proprietary insurance wrappers -- the very structures now raising ERISA prohibited transaction concerns."  MORE >>

Citigroup and Stanley Black and Decker Fiduciaries Accused of Fiduciary Malpractice for Choosing Morningstar's Top-Rated BlackRock Target Date Funds

"In both lawsuits, Miller Shaw flips the script of the typical excessive fee lawsuit by alleging that the respective plan fiduciaries 'chased the low fees' charged by the BlackRock index target-date funds and saddled the plans with purportedly inferior returns compared to other target-date funds. The complaints are filled with charts ... implying that Morningstar validates their fiduciary malpractice claims. But they leave out the most important chart in the entire Morningstar survey -- the one that identifies the very same BlackRock target-date funds as the number one rated target-date funds in the 2022 Morningstar survey."  MORE >>

Rollins Inc. 401(k) Participant Sues Morningstar, Prudential Over Alleged RICO Violations

"The complaint said Morningstar and Prudential violated the Racketeer Influenced and Corrupt Organization [RICO] Act by engaging in a 'conspiracy' to increase revenue and profits 'from their self-interested administration' of GoalMaker, an 'automated investment advice program' from Morningstar and Prudential. Alleging GoalMaker is a 'predatory racketeering enterprise,' the lawsuit argued that it 'gets retirement plan investors to turn over the investment management of their accounts' to a unit of Prudential." [Green v. Morningstar, Inc., No. 17-5652 (N.D. Ill., complaint filed Aug. 3, 2017)]  MORE >>

Morningstar's 401(k) Week

"[H]ow do we make [the 401(k) system] work? What role can employers play? And how can we, as employees and as savers, also become the good investors we need to be to ensure a comfortable, well-funded retirement? This week, we aim to help you stack the deck for success in your 401(k) plan. We'll cover the basic rules and tax advantages of the investment wrapper, how to allocate your 401(k), and what to do with your assets once you enter retirement. We'll also look at the viability of the 401(k) itself in a special roundtable discussion on Friday."  MORE >>

Morningstar Star Ratings: Do They or Don't They Predict?

"Most of the advisers ... see Morningstar's ratings as historical evaluations, not predictive devices. Morningstar, the proverbial hairdresser in this sense, appears to delight in leaving the answer rather ambiguous. It wasn't always this way.... But now Morningstar's tune might be changing."

MORE >>

Thoughts on Morningstar's Target Date Fund Research

Excerpt: Two weeks ago Morningstar published its 2010 Target Date Fund Survey. In the survey Morningstar compared the performance of 'open' and 'closed' fund series and drew the conclusion that neither had a distinct performance advantage. This conclusion is not particularly surprising given relatively few funds have long enough return histories to do a complete analysis. However, what was surprising was what Morningstar omitted from the report, and in particular three major differences between 'open' and 'closed' funds that we think paint a very clear picture of why the differences between open and closed funds are significant.  MORE >>

Morningstar Launches Online Investment Document Library

Excerpt: Morningstar, Inc. has launched the Morningstar Document Library, an online repository of documents covering investment products. The Library includes documents from open-end, closed-end, money market, and exchange-traded funds, as well as unit investment trusts, variable annuity subaccounts, and stocks. Morningstar said brokerage firms and retirement plan providers can link to the library or integrate it into their adviser and investor platforms, software, tools, and Web sites to deliver documents to clients that meet pre- and post-sale regulatory requirements.

MORE >>

Morningstar Drops Recommended Safe Withdrawal Rate to 3.7%

"Morningstar Inc. has lowered what the investment research firm considers a safe retirement savings withdrawal rate for new retirees based on a 30-year outlook.... Morningstar researchers considered forward-looking asset class returns and inflation assumptions for new retirees, excluding what they may be getting from Social Security or other nonportfolio income sources such as a company pension."  MORE >>

Class Action Alleges 'Scheme' by TIAA and Morningstar to Drive Participants Into TIAA's Most Profitable Funds

"The Complaint alleges TIAA and Morningstar developed an investment advisory tool ... deliberately inducing participants to transfer account balances into TIAA's Traditional Annuity and/or Real Estate Account, TIAA's two most profitable investment products. Notably, no plan nor plan sponsor is named as a fiduciary nor a Defendant. TIAA and Morningstar are the sole Defendants." [Kelley v. TIAA, No. 24-5945 (S.D.N.Y. complaint filed Aug. 5, 2024)]  MORE >>

Wave of Annuities in TDFs: 'It's Complicated' Says Morningstar

"[N]ew Morningstar research takes a deep dive into the new wave of target-date strategies trying to make the transition from saving to spending easier by including annuities as part of their glide path.... For investors who plan to annuitize some of their assets, this package deal eliminates having to sort through myriad complicated options. Providers choose the type of annuity, which varies by series, and do the due diligence on insurance companies."  MORE >>

Morningstar Advises 3.8% 'Safe' Withdrawal Rate

"Morningstar's annual model of how much a retiree with a balanced portfolio should withdraw over a 30-year time horizon increased to a starting point of 3.8% on the back of higher bond yields and lower equity valuations. The investment data and insights provider said the return outlooks were appreciably higher than last year, when the firm recommended a 'safe' withdrawal rate of 3.3%. That rate made waves at the time because it went against the industry standard of a 4% withdrawal rate for a retirement portfolio balanced roughly 50-50 between stocks and bonds."

MORE >>

Top 10 HSA Providers: Morningstar 2018 Assessment

"Transparency remains low for many of the top HSA providers ... Investment menu designs have improved, with several plans ... reducing investment menu overlap or adding core investment options.... Fees vary across HSA plans but remain elevated.... [T]he average cost for passive funds ranges from roughly 0.30% to 0.75% per year, and the average for active funds from about 0.80% to 1.20%. Eight of the 10 plans require investors to keep $1,000 or $2,000 in a checking account before they can invest, which can create an opportunity cost."  MORE >>

Morningstar to SEC: Reg BI Must Include Rollovers

"Morningstar told the [SEC] that Reg BI needs to identify rollovers 'as specifically requiring a prudent process and documentation to ensure they are in retirement investors' best interests.' Rollovers ... particularly from retirement accounts covered by [ERISA], 'require additional scrutiny because most financial professionals have an incentive to recommend that clients roll over their assets.'... The Morningstar comment letter notes that flows into mutual funds paying unusually high excess loads declined after the [DOL] proposed its fiduciary rule in 2015[.]"

MORE >>

Prudential, Morningstar Beat Robo-Adviser Lawsuit

"The lawsuit seeks to represent up to 5 million investors in 'hundreds' of retirement plans that used the GoalMaker robo-adviser designed by Morningstar and offered by Prudential. The investor who filed suit says the defendants tweaked GoalMaker to intentionally steer people toward higher-cost funds that earned extra fees and kickbacks for Prudential."

MORE >>

Morningstar Removes Gold-Level Rating on PIMCO Total Return Fund and Predicts Possible Exit of 'Tens of Billions' in Assets

"[Morningstar has] lowered its rating on the Newport Beach, Calif.-based firm by two full levels, from gold to bronze, citing the departure of Bill Gross from PIMCO and the unintended consequences of that sudden exit. 'Given Bill Gross's abrupt departure, investors have focused on the possibility that out-flows could wreak havoc on the portfolio. Snap estimates of expected outflows have been all over the map, but it seems likely that outflows could total in the tens of billions of dollars,' wrote senior analyst Eric Jacobsen about PIMCO's Total Return Fund."

MORE >>

Morningstar Survey of Target Date Series Assets, 2013 (PDF)

"Target Date series assets crossed the $500 billion mark in 2013's first quarter, marking strong growth in a maturing industry.... [A]nalysis of target-date glide paths showed most should deliver similar results that should sufficiently support retiree spending to age 85. Results begin to notably diverge beyond that age, however, with glide paths with less exposure to stocks carrying increased risk that retirees will outlive their savings. Glide paths that shift their asset allocation to retirement and those that continue to shift after retirement are likely to produce similar outcomes for investors up to age 85 ... Beyond that age, however, results diverge."  MORE >>

Problems With Morningstar's New Rating System for Actively-Managed Mutual Funds

"Morningstar unveiled a new rating system in late 2011. This system sought to avoid 'recency bias' by keeping a long-term perspective and by not being influenced by 'what investors are buying and selling'.... Fast forward one year. How did the new ratings system do in 2012? Not well."  MORE >>

Morningstar Debuts Web-Based Variable Annuity Research Tool

"Morningstar officials said Annuity Intelligence combines the best features of two popular tools, Morningstar Annuity Analyzer and the Annuity Intelligence Report, to create an all-in-one source for annuity data and information. Users will now have improved capabilities to search for variable annuity contracts, compare them side-by-side, and then generate client-friendly, FINRA-reviewed presentations and reports."  MORE >>