Morningstar stumbles following analyst ratings change
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Morningstar's rating in this year’s survey of fund managers has slightly deteriorated over the past 12 months, particularly in the area of methodology.
This, however, could be explained by a recent change in Morningstar’s analyst ratings scale, which was introduced to align the approach to qualitative investment research across its global business.
The five-tiered analyst rating scale now has three positive levels – Gold, Silver and Bronze – in addition to Neutral and Negative ratings.
Following the change, many funds previously holding a “Recommended” label received Silver or Bronze ratings, according to co-head of fund research, Tim Murphy.
“A lot of them reacted badly because ‘Recommended’ sounds good, while Bronze [although still a positive rating] doesn’t sound that great,” he said.
“We are working with fund managers to help them understand the new model.”
Much of the dissatisfaction might also come from a high proportion of average and negative fund ratings given by the researcher – in fact, higher than other players in the market, Murphy said.
This is due to the company’s pure subscription-based remuneration model (also exercised by van Eyk Research and Mercer) which makes it accountable to its client base rather than fund managers, Murphy added.
Morningstar’s real focus over the past 12 months, however, was increasing the resources in its research business with senior hires such as that of former Lonsec chief Grant Kennaway.
There was also an increasing focus on building the technology supporting Morningstar’s research and introducing features such as adviser desktop tools.
“In a [Future of Financial Advice] world advisers will need to clearly define their value proposition, so it’s not just about having a rating on a fund, but about having a complete picture,” Murphy said.
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