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Let me be clear: Morningstar® has a number of valuable products and features – some of which my shop has relied upon for years.  That said I would also like to ask a question of my friends at Morningstar®:  what level of market penetration are you attempting to capture? 

To set the table, let’s look at a fairly typical scenario: a quarterly investment review with a plan sponsor’s investment committee.  In this setting you have committee members, an investment advisor, and, potentially, the relationship manager for the recordkeeper.  All of these individuals have assembled to review the investments within the plan’s menu.  Ironically, all of them may be using different variations of Morningstar’s® products and services.

• Committee members, as investors, are often subscribers of your online service.
• Investment advisors are regular subscribers to one of many different reporting packages offered by your firm (example one; example two, example three, example  four).  They may also use other reporting packages that use a feed from your shop as the data engine.
• The recordkeeper pays to use your fund fact sheets in plan sponsor reports as well as participant education and enrollment kits.  Further, the recordkeeper may have an additional arrangement with your shop to offer asset allocation modeling, participant advice and even investment advisory services.
• Though they are not typically present, the fund companies themselves also pay you for the ability to utilize your ratings for their investment offerings.

In short, a typical committee meeting may, at the end of the day, involve many different parties getting together to review different versions of output and analysis from one source: your firm.

There is at least the potential for danger here as a lack of diversity of opinion is not typically healthy for objective analysis.  There is also the possibility that your sheer size and market penetration might impact the investments you are reviewing (point of view #1, point of view #2).  Finally, there is definitely the potential for a conflict of interest when your shop is selling information and services to all parties.

The theme of offering your services as many ways as possible is best represented by my shop’s experience as your customer (two versions of your advisory products as well as the data feed for the outside analysis tool).  At least once a year, we receive a call from a member of your sales team.  This individual, who represents a particular product of your firm, attempts to persuade us to discard the Morningstar® products we currently use in favor of his particular solution.  Each time, the salesperson has to perform research on the particular product he is representing versus the existing products (there are too many competing offerings and your sales team is only versed in the variation they represent).  Each time, we find that there is some facet of one of the products that isn’t offered by the others (the data feeds are the same but the reporting and functionality is different for each product).  Each time, the rep promises to call back once that missing element has been incorporated.  This process has gone on for years -- and took place again roughly three weeks ago. 

My shop is your client.  We are also, increasingly, your competitor.   I’m beginning to suspect that the only reason you tolerate competitors is your ability to sell us multiple versions of your products.  I also wonder how long this rather odd marriage can last.  In your new, forward-looking approach, who are your clients, and do you still have competitors?

Marshall J. Cobb, CRSP, is president and founder of Cobb Retirement Solutions, LLC., an independent, fee-only firm offering qualified plan analysis and oversight exclusively to corporations and organizations. Cobb’s first-hand knowledge as a veteran representative of retirement plan vendors beginning in 1990 gives him a unique perspective as he advises his clients.  Cobb runs his office -- based in Houston, Texas -- with employees and clients across the country.