Morningstar Introduces Best Interest Scorecard to Help Advisors Evaluate Proposals for Clients and Prospects Based on Investment Value, Client Fit, and Service Value

"Investors today are demanding a more collaborative and transparent approach to investment advice, which is driving advisors to better demonstrate and document the value of their advice," said Tricia Rothschild, chief product officer at Morningstar. "With the Best Interest Scorecard, advisors now have a rigorous, convenient way to assemble the data they need to consider investment options, investors' preferences and financial situations, and other factors to ensure their advice is in the best interests of prospective or actual clients."

The Best Interest Scorecard is a comprehensive tool that enables advisors to assess the client's current investment plan; changes the client could make within their current plan; and the new portfolio and service offering that the advisor is proposing for the client through a rollover or other process.

Advisors can then determine, demonstrate, and document whether their proposal is in the investor's best interest through three different lenses:

• Investment Value: The expected returns and costs of 97.5 percent of US mutual fund and ETF assets, powered by our research team's ratings and methodology.
• Client Fit: Overall efficiency of the asset allocation relative to Morningstar® Target Risk Indexes¹ and the ability of the plans to deliver a portfolio that matches the client's risk profile. In a sample of retirement portfolios, Morningstar found that 90 percent were aligned with the asset allocation and diversification embedded in the Target Risk Indexes and 10 percent were not².
• Service Value: The net benefit of financial planning services provided, dynamically mapped to the investor's needs. Morningstar research has revealed that these services can add more than 20 percent to an investor's income in retirement before fees.³ Examples include life insurance advice, estate planning, behavioral coaching, rebalancing and annuity purchase decisions.

The Best Interest Scorecard also allows advisors to capture other client factors, such as appreciated employer securities, financial health of the investor and employer, or desire to work with an advisor, without weighing these factors explicitly in scores.

"For the first time, advisors can provide investors with a clear, concise synopsis of how their proposal could benefit them," said David Blanchett, head of retirement research at Morningstar Investment Management LLC. "Our methodology is unique as it combines ratings and analytics from Morningstar's comprehensive investment database with retirement plan data and aggregation capabilities to give advisors the most up-to-date and rigorous information we can get on retirement plan fees, lineups, and participant portfolios."

The Best Interest Scorecard is fueled by Morningstar's proprietary research including the Morningstar Quantitative Rating^TM, asset allocation models and portfolio analytics to assess portfolio risk and returns-based style, and proprietary measures of the utility of advisory and financial planning services to investors at different stages of their investing career. All these have been assembled into a concise decision architecture that enables advisors to assess the net benefit for their client of changing to their proposed plan and portfolio from an existing one.

Please visit http://www.morningstar.com/company/dol-fiduciary-rule for more information about the Morningstar Best Interest Scorecard and Morningstar's Best Interest Solutions. Learn more details about the research behind the Best Interest Scorecard at http://www.morningstar.com/blog/2017/09/28/rolling-over-401k.html.

About Morningstar, Inc.

Morningstar, Inc. is 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 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, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $220 billion in assets under advisement and management as of Sept. 30, 2017. The company has operations in 27 countries.

¹ Morningstar Target Risk Indexes are created and administered by Morningstar, Inc. Morningstar Target Risk Indexes cannot be invested in directly and the asset allocations embedded in them are subject to change.

² For informational purposes only; statistics noted are as of the date of this release, are subject to change and are not intended to be viewed as guarantees of future performance or meeting an investors goals. Morningstar tested 1,079 U.S. asset allocations funds as a proxy for a broad sample of retirement portfolios. The results bear only on these funds fit to the Morningstar Target Risk Indexes for asset allocation and diversification and have no bearing on individual client risk profiles, which the Morningstar Best Interest Scorecard also provides in practice. 

³ "The Value of a Gamma-Efficient Portfolio" by David Blanchett, Ph.D., CFA, CFP and Paul D. Kaplan, Ph.D., CFA, Oct 25, 2017; "Alpha, Beta, and Now… Gamma" by David Blanchett, CFA, CFP, and Paul D. Kaplan, Ph.D., CFA, Aug 28, 2013.

©2017 Morningstar, Inc. All Rights Reserved.

MORN-P

Media Contact:

Godhuli Chatterjee Gupta, +1 312 244-7577 or [email protected]

SOURCE Morningstar, Inc.

Related Links

http://www.morningstar.com