Morningstar Introduces Best Interest Scorecard

The consolidated proposal system, available in Morningstar® Advisor Workstation(SM), represents company’s ongoing efforts to help advisors serve clients’ best interests

CHICAGO, Oct. 26, 2017 /PRNewswire/ — Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced the launch of the Morningstar Best Interest Scorecard, designed for financial advisors to help clients make an informed decision on possible rollover options designed with their best interests in mind. This new tool demonstrates Morningstar’s ongoing efforts to prioritize investors’ best interests in light of changing regulatory requirements for retirement accounts, as well as evolving investor preferences and global trends around investment advice. The Best Interest Scorecard is available as an add-on feature in Morningstar® Advisor WorkstationSM.

Morningstar, Inc. Best Interest Scorecard

“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. Morningstarresearch 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 RatingTM, 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.

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