A Rising Star?

As regular readers will know, over the last few weeks, we have been looking at some of the specialist financial planning tools. Our review of Morningstar gave us a different perspective as it was its depth rather than breadth that stood out.

Morningstar’s Adviser workstation is more narrowly focused in what it provides - it doesn’t cover the same breath of need areas other do.  For example, it doesn’t do tax, or estate planning, nor does it cater for protection planning .  What it does do is provide detailed investment planning – measuring risk tolerance, forecasting, asset allocation, portfolio construction and portfolio monitoring - and it does this extremely well.

Morningstar is a sizable company and much bigger than the other companies we have reviewed.  Founded in 1984 it was floated in 2005 and now boasts revenues in excess of $500,000 and has 2,200 employees.  It has gained a strong user footprint in the market with 200,000 advisers using its Adviser Workstation product worldwide.  In addition, Morningstar is also strong in providing research material and consultancy services.  This extent of investment capability directly benefits the Adviser Workstation clients as the research is provided free to all users.

Morningstar’s penetration of the UK market has been slower than in the US, with a current user base around about 500 here in the UK.  However, this figure is somewhat misleading as they also have various modules of their tool available on some of the major platforms in the market, including Cofunds, Transact, Accentric and Fidelity FundsNetwork.

Looking at the different modules of the tools themselves, I would say the Risk Tolerance tool is adequate, but not as good as some of the others.  It has seven questions to assess the attitude to risk (ATR) and the ATR can be either assessed generically across all need areas, as well as adjusted to reflect different attitudes against different goals. 

As a nice touch, it can also be modified to reflect life-stage changes, for example as clients approach retirement -, a process Morningstar refers to as defining their ‘glide path’.  I would like to have seen configuration options to enable a shorter or extended Risk Profiling process and perhaps a seamless integration to a third party risk-profiler as well.

The portfolio construction is extremely impressive.  The tools can drill down to a level of detail far beyond anything we have seen so far in the investment planning area.  Portfolios can be constructed and customised from tens of thousands of funds broken down into 23918 Offshore funds, 14566 UK RFS, 10428 UK Individual Pensions,  7327 UK Life Funds, 749 UK Pooled Pensions , 451 UK Investment Trusts, 31,660 Global Equities, 2890 UK Equities, 31,000 Global Index Database. In other words the detail is impressive by anyone’s standards.

Various asset allocation models can be used, but they  default to the Ibbotson Models, provided by Ibbotson Associates  sister company to Morningstar and asset allocation experts.  The tools and the graphical illustrations used here are clear and effective. The level of detail behind each fund is impressive, ensuring that asset are categorised accurately, aiding effective asset allocation against agreed ATRs.

The report generation capability is equally impressive. There is a wide range of template reports, but the construction and content of the end client report is under the user’s control, choosing the standard sections they want and tailoring the text if required. Morningstar say they have a design team of 50 that spend their time creating effective graphics to explain complex issues – something that could be seen in the quality of the client reports produced.  The graphics used are clear and understandable and the look and feel of the report is very appealing.  It is a bit like the Audi A8 – professional and slick yet understated - not too flash and gimmicky like some reports we have seen.

We have talked much in past articles for the need to have a degree of integration with other IFA tools to avoid rekeying of information.  Given the investment focus of Morningstar it is no surprise to see that the focus of these integrations has been with the Platforms.  The major platforms are either embedding their tools within their own solutions, or are supporting integration links to the Morningstar tools.  We would like to see them widen their focus and integrate with the major back-office providers too.

In summary if you are looking for a more holistic planning tool to address a wide range of lifetime goals for your client – this is probably not the tool for you.  However, if you require a tool to help you effectively manage your clients’ portfolios, this is a very strong candidate.  At £166 per user per month it is one of the more expensive tools we have reviewed, but because of the extras you get with it, the price may be justifiable.  The company is clearly ambitious and so we expect Morningstar to grow its market position over the coming years.