"That's not the way these things should run," says Gib Watson, who runs Prima Capital in Denver. "I would say the minimum for these vehicles should be at least $500,000."
Watson, whose firm is a competitor of Morningstar, adds that the service today lacks the detail of a comprehensive money manager selection firm such as Mobius, one of the older money manager selection firms. Mobius, which was founded as an evaluator of money managers in the late 1980s, was sold to CheckFree Investment Services in Research Triangle Park, N.C., in 1999.
Tom Steinberger, CheckFree's vice president and general manager, says that he sees Morningstar posing little direct competition. "We're basically looking at an institutional clientele. I don't think Morningstar is going to be able to sell to them in the beginning," Steinberger declares.
Several financial professionals agree that Morningstar's current offering will not be providing the thoroughness of other money manager evaluators, especially CheckFree, which retains the Mobius product service identity. "Morningstar, now, has a rather thin level of coverage. They're not strong on evaluating firms and their professionals. They're not supposed to be looking for the same things that mutual fund analysts are looking for," Watson says.
Steinberger emphasizes that his firm is not going to directly compete with Morningstar, but he does not dismiss them as a competitor. "We have respect for them. We have worked with them. But we are doing something very different. We are not rating-positively or negatively-money managers. Instead, we provide 200 different variables on money managers. We provide numbers and other variables on 3,300 money managers and 5,500 different investment styles," Steinberger says.
He says CheckFree would never rate the managers, leaving that up to the professionals and firms.
"It seems to me that what Morningstar is doing is a kind of a light version of Mobius," Watson says. "I'll be happy to stick with Mobius. That's all I'm going to need."
But Morningstar's Tagal notes that his firm has only been gathering data for about a year. He expects that the service will be expanded as more firms begin to cooperate.
Although Morningstar isn't using ratings yet, Tagal says there will be some kind of star rating applied for these services. "We are working on that and are adding a lot more detail to the service," Tagal adds.
Nevertheless, he concedes that Morningstar will have to take a different approach with separate accounts. "The nuances of the separate account are very different from the mutual fund, which has certain required reporting. Much of the information drips in [for] the separate accounts. Nevertheless, we do expect to evaluate these services for the investor and the adviser so they can see if these portfolios are really what they say they are," he says.