May 14, 2019

In the earnings press release's discussion of the soft asset-based revenue trends there was reference to advisors favoring lower-fee strategies. Is the implication that Morningstar's products are higher fee than what some advisors are willing to allocate to? We had been under the impression that with Morningstar Funds Trust resulted in lower fees and made Morningstar's product offering more cost competitive, but it seems that the trend to passive management is overwhelming that potential be

In our Q1 2019 earnings release, we remarked that “advisors continue to favor lower-fee strategies” in an effort to explain that our overall assets under management and advisement solutions mix had changed, particularly in the Morningstar Managed Portfolios business in the U.S. Specifically, compared to year-end 2017, a higher percentage of assets were in lower-cost ETF strategies compared to higher-fee equity separately managed accounts.

As one of our seven guiding investment principles, Morningstar Investment Management seeks to minimize the costs of the implementation vehicles utilized, whether they are individual securities, mutual funds or ETFs. Our rationale for launching Morningstar Funds Trust (“Morningstar Funds”) reflects our commitment to providing our Morningstar Managed Portfolio clients with lower-cost options. By moving from using third-party funds to sub-advised Morningstar Funds, Morningstar Investment Management is able to negotiate better fees from asset managers as well as reduce our overall program fees. As a result, clients investing in Morningstar Funds-based managed portfolios saw fees drop by 20% on average. The total expense ratios of our Funds are competitive in their categories and we aim to pass further savings to investors as they build scale. We believe this outcome is a win-win for the client and for us. The client gains access to our best advice at a lower price point, and we retain the opportunity to manage more of the client’s assets over time, helping us to offset fee compression.

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