Tagal sees two immediate markets for the service. One, he says, is independent advisors who don't have the access to manager search services of their counterparts at the wirehouses and maybe can't afford services such as Mobius.
Tagal also contends that "captive reps" at the wirehouses could start to use the service as a way of obtaining "a second opinion on a manager." Right now, the big five of the separate account business are not using the Morningstar service or providing numbers. These big firms, including Merrill Lynch, Salomon Smith Barney, UBS PaineWebber and Morgan Stanley, hold about 75% of the assets of the $400 billion business, according to Davis. Tagal is hopeful that, eventually, all of these firms will cooperate and even subscribe to the service.
The Money Management Institute's Davis, however, is unsure. "In the long term, maybe. But in the short term the wirehouse are not going to cooperate with Morningstar," predicts Davis, who has representatives on the institute's board from many separate account providers at the wirehouses. But Davis says Morningstar will be a net plus for the separate account business, which continues to boom despite bad times in the stock market.
More light, more facts and more channels of access to the performance of popular money managers and their firms are likely to help the suddenly popular separate account business. Nevertheless, the business needs more ways to measure who is doing well and who is not, or today's growth could easily fade.
The business of separate accounts appears to be riding high right now, basking in the glory of not having self-destructed. Whether Morningstar improves the transparency or not, the players in the business should remember too much success has ended in sudden failure. That's when the light shining on an investment became a bad thing.