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Under the bonnet of fund research agencies: Morningstar

If there is one name that comes to mind when discussing research agencies, it is Morningstar.

Asset managers make the headlines when a fund has won or lost a rating from the group thanks to its global reach and reputation. Morningstar has enjoyed market domination for years and acquired its main UK competitor at the time, OBSR, in 2010.

Although the rise of open architecture and the thousands of fund choices made available to investors and advisers has brought competition to the sector, Morningstar has managed to retain its remarkable influence and brand power.

Our research shows it resonates well with end-investors. When we asked which specialist websites they go to to get information about investments, Morningstar  – used by 9 per cent  – came out as one of the top, well above FE, its main competitor in the research agency space.

It is worth putting that 9 per cent into context. Compared with investors’ use of other generalist and provider websites, the extent of its influence becomes clear. Only a few leading generalist publications, such as the Financial Times and the Telegraph, come above it, while Hargreaves Lansdown is the only fund management or platform provider to do so.

Hargreaves is one of very few direct-to-consumer platforms that does not feature third-party ratings through fund research tools or select lists. However, this is an area where Morningstar has the highest presence of all agencies.

This is also true beyond the UK. For example, leading D2C platforms like Sweden’s Nordnet and Germany’s Comdirect present its ratings to investors.

We have found some advisers use ratings from research agencies in their conversations with clients. This strong resonance with the end investor should help Morningstar drive up engagement in this area.  Indeed, this is not where its influence is strongest.

Our data shows 52 per cent of advisers that look to third-party research to inform their fund due diligence use Morningstar. But while this is a significant increase from the 33 per cent seen in 2014, it is lower than the 80 per cent using FE.

That said, a combined use of both Morningstar and FE is now one of the most popular options for advisers. Morningstar’s ratings can also be accessed through FE’s platforms.

The three Morningstar rating ranges – Star, Analyst and Sustainability – cover all types of funds. We think the agency will benefit from its recent launch of Analyst ratings for ETFs. Our data shows nearly all the advisers that recommend ETFs use third-party research. This signals demand for research on these products – something only a few agencies, including Morningstar, currently provide.

Some research agencies have developed discretionary or managed portfolio services to serve those advice firms that prefer to outsource.

Our latest data shows 38 per cent of advisers use third-party model portfolios, although we see evidence to suggest the trend to outsource might have plateaued.

Morningstar offers a range of managed portfolios, available on 14 adviser platforms. This represents by far the highest presence of a managed portfolio proposition from a research agency in the platform space.

Morningstar’s view – which is not shared by other research agencies – is that a Chinese wall should exist between the managed portfolio services team and the fund research analysts so as to avoid any conflicts of interest.

The portfolio services sit within a regulated entity, Morningstar Investment Management Europe.

Morningstar is well placed to benefit as more advice firms seek to move further up the value chain by taking on discretionary permissions and building in-house solutions.

Building on end-investors’ familiarity with its ratings, it can expand the influence of its research. That said, it will also benefit from the wide presence of its managed portfolios on adviser platforms if outsourcing continues to be popular.

Rodolfo Crespo is senior analyst at Platforum

This article is the latest in a Money Marketing series profiling the main UK fund research agencies. For the full series, click here.

For more information on Platforum’s The Influence of Research Agencies report, contact


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