You may have a powerful new, low-cost competitor or fund provider that isn’t a robot, but probably is a firm you have relied on for analyzing and selecting mutual funds.

Giant mutual fund rating firm Morningstar expects to launch a sub-advised in-house group of funds, funds with lower costs and possibly easier to use than many portfolios now offered by advisors. That’s what Morningstar officials told the Securities and Exchange Commission in a filing.

Morningstar already is a player in the asset management business through its Morninstar Managed Portfolios and Workplace Solutions unit.  Prior to this announcement, its investment management solutions business included portfolio construction, monitoring, security selection and implementation.

However, this latest move could significantly expand its position in a market where it serves as both a rater and arbiter. Skeptics are likely to question whether the firm faces serious conflicts in rating the same firms and mutual funds it simultaneously sells and competes against.

But advisors interested in providing their clients options with extremely low expenses may also see value in offering these accounts to clients. For now, Morningstar indicates this platform will only be available to advisors. “Lowering costs on our products is aligned with our investment principles,” according to the filing.

These nine funds will compete with other mutual fund platforms and some advisors. They also can be used by advisors in a managed account. But will they possibly undercut advisors, mutual fund companies and other asset management platforms offering higher priced services?

“To understand what’s changing, it’s useful to consider how we build these portfolios today,” Morningstar wrote. Portfolio managers select and allocate assets to between 15 and 25 third-party mutual funds that they believe to be best in class, says Morningstar.

“We expect the cost savings to come from lower fees paid to third-party managers by removing a layer of costs embedded in the current fee structure,” Morningstar continued. “We expect these fees to be eliminated by using Morningstar sponsored funds in our Managed Portfolios. All else equal, lower fees should leave more money where it should be --in investors’ accounts.”

Morningstar's fund rating system has its own critics. Experts who have analyzed asset flows into mutual funds have noted that funds with five-star ratings, the top rating Morningstar assigns, attract the lion's share of new assets.

Critics, including some advisors, charge the star system is backward looking and encourages investors to direct their savings into funds they should have purchased three to five years ago. Observers will be watching how Morningstar weights various factors, particularly cost and performance, in selecting funds for the new program.

Morningstar, in its filing, also said its advisor fund offering would create a more flexible format; that it would allow investors to achieve goals with fewer funds. (See below: Some Highlights from Morningstar’s Filing.)

Whether as an ally or competitor, Morningstar officials said the funds are designed as a lower-cost alternative to advisors. The latter’s services have been often criticized by consumer advocates. Critics have argued over decades that the advisory industry has been unable to provide cost-effective help to the people who need their services the most: Those with few or no assets.

Morningstar officials, citing SEC quiet period rules, declined comment.

Highlights From Morningstar’s Filing

· To reduce costs: We believe that moving to our own Morningstar funds will significantly reduce the costs to investors using Morningstar Managed Portfolios. Essentially, the Morningstar funds will help us achieve savings that we can pass along to investors. Secondarily, we believe that using the Morningstar funds could lead to enhanced tax-efficiency and facilitate the process of reallocating assets within each portfolio, when necessary.

• To simplify the portfolios and how they’re managed: Currently, the typical portfolio consists of 15 to 25 third-party mutual funds. Because the Morningstar funds would allocate assets to multiple managers, we believe we can use about one-quarter to one-third as many funds while keeping the same investment exposures. This should make the portfolios easier for advisors and clients to understand, and should also simplify portfolio management itself.

• To gain flexibility: The Morningstar funds should afford our portfolio managers greater flexibility to express investment ideas and adjust positions as circumstances warrant. Currently, it can be a bit cumbersome to adjust allocations to third-party mutual funds. That process should be smoother with Morningstar funds, which will invest through separate-account sleeves. We believe we will be able to reallocate capital between subadvisors more nimbly and precisely than before in this format. Also, using the Morningstar funds will give us access to managers who, while skilled and capable, don’t offer mutual funds and will allow us to implement investment ideas from our valuation-driven, contrarian-minded investment approach that the third-party fund structure would not.