Morningstar Addresses 'Know Your Product' Obligations of the Client Focused Reforms with the Launch of the Due Diligence Module into Morningstar Advisor Workstation

TORONTO, Sept. 21, 2021 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today announced the launch of the Morningstar Due Diligence Module^SM, empowering advisors to evaluate and document a reasonable range of alternatives prior to making an investment recommendation. This addresses a critical component of the "Know Your Product" (KYP) obligation of the Canadian regulatory changes known collectively as the Client Focused Reforms (CFRs).

"At the heart of the CFRs is a renewed commitment to align investment strategies to investor needs and their risk profile," said Ian Tam, director of investment research at Morningstar Canada. "What excites us about the Morningstar Due Diligence Module is that it brings that commitment to life by providing advisors with a simplified workflow to easily consider a reasonable range of alternatives for each recommendation."

Results from a Q2 Morningstar industry surveyⁱ suggest there is some uncertainty that advisors and firms are prepared to adequately address this regulatory demand. Of a representative sample of 110 financial advisors, 64% shared that they are "on their own" without support from their head office to navigate the reasonable range of alternatives requirement. Yet 36% of respondents indicated they have "none" or "not much" understanding of the Client Focused Reforms. This could lead to a significant challenge for head office teams to ensure advisor readiness in time for the regulatory deadline. This lack of confidence is reflected in the responses from the 64 head office respondents as well. Only 39% in this group believed their firm to be prepared to help advisors "establish a simple, standard and auditable process to find a reasonable range of alternatives."

To that end, a solution that can situate the fundamental regulatory requirements into the daily operations of advisors, like the Morningstar Due Diligence Module, could bolster the confidence of both firm head offices and their advisors. "Firms that can easily operationalize CFR requirements will be more likely to create clear and lasting compliance processes that minimize the impact to their advisors," said Alan Moorhouse, head of product and client solutions at Morningstar.

Key functions of the Morningstar Due Diligence Module include:

• Ability to filter a product shelf for a reasonable range of alternatives – Intuitive workflow for advisors to quickly narrow down, compare, and select from a firm's approved product shelf. The module helps in assessing recommendations against performance, risk, and fee data, in addition to integrating Morningstar's industry recognized proprietary ratings.
• Select suitable investments - The module establishes a firmwide standard process for advisors to demonstrate they have considered a reasonable range of alternatives when building investment proposals. The built-in audit trail helps show they have addressed key portions of suitability requirements.

The Due Diligence Module is an add on to Morningstar's existing research capabilities and can be enabled seamlessly for firms who license Morningstar Advisor Workstation^SM, as well as offered to wealth management firms and their advisors who do not currently license the product. The module supports mutual funds, exchange traded funds, and equity data, with additional investment types planned in subsequent releases.

"The Due Diligence module has been designed with the flexibility to enable firms to ensure their advisors can compare the investment attributes which are viewed as most important to investors and also support the suitability requirements of the Client Focused Reforms," said Moorhouse. "Morningstar has configured a solution for wealth management firms that incorporates the due diligence principles used in the creation of their product shelf while at the same time providing a workflow which has minimal impact on the day-to-day workload of their advisors."

For more information on the Due Diligence Module, please visit https://www.morningstar.com/try/client-focused-reforms.

About Morningstar Research Inc. and Morningstar, Inc.  
Morningstar Research Inc. is a Canadian subsidiary of Chicago-based Morningstar, Inc., a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately US$251 billion in assets under advisement and management as of June 30, 2021. The company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc. 

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ⁱ Information shared here is based on an industry survey conducted April-May, 2021 to Canadian financial advisors and head office professionals involved with Client Focused Reform compliance or operationalization. In total, 142 advisors, and 64 head office respondents completed some/all of the survey to give us a better picture of the industry's readiness for the upcoming regulatory changes. More information and insights can be found here.

Media Contact: 
Scott Anderson, 416-420-9909, [email protected]

SOURCE Morningstar, Inc.

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