Morningstar rolls out due diligence module for advisors

Expansion to existing platform eases compliance through simplified workflow in providing suitable investment recommendations

Morningstar rolls out due diligence module for advisors

As wealth firms across Canada wrestle with the know-your-product obligations tied to the client-focused reforms (CFRs), Morningstar has unveiled a new solution that aims to help advisors as they strive to satisfy a higher standard of client service.

With the newly launched Morningstar Due Diligence Module, the firm promises to empower advisors to evaluate and document a reasonable range of alternatives as they make investment recommendations.

“At the heart of the CFRs is a renewed commitment to align investment strategies to investor needs and their risk profile,” said Ian Tam, director of investment research at Morningstar Canada. "[T]he Morningstar Due Diligence Module … brings that commitment to life by providing advisors with a simplified workflow to easily consider a reasonable range of alternatives for each recommendation."

An add on to Morningstar's existing research capabilities, the module can be enabled seamlessly for firms that have licensed Morningstar Advisor Workstation. Wealth management firms and advisors who do not currently license the workstation may also get access to the Due Diligence Module.

Advisors using the module can quickly narrow down their options from their firm’s approved product shelf. Aside from integrating Morningstar’s proprietary ratings, it helps in assessing recommendations – currently, the module supports mutual funds, ETFs, and equities – based on performance, risk, and fee data, with a filtering capability to let users quickly narrow down their options.

From a firm-wide perspective, the module creates a standard process for advisors to show they’ve considered a reasonable range of alternatives when building investment proposals. Apart from that, the tool offers a built-in audit trail to help show key elements of suitability requirements have been addressed.

"Firms that can easily operationalize CFR requirements will be more likely to create clear and lasting compliance processes that minimize the impact to their advisors," said Alan Moorhouse, head of product and client solutions at Morningstar.

In a Q2 Morningstar survey that included 110 financial advisors, 64% said they were “on their own” without support from their head office in navigating the reasonable range of alternatives requirement. In addition, 36% of advisors said they had “not much” understanding, or “none,” with respect to the client focused reforms.

The survey also drew responses from 64 head office representatives. Among this group, just two fifths (39%) were of the belief that their firm was ready to help advisors “establish a simple, standard and auditable process to find a reasonable range of alternatives.”