Morningstar has launched a new tool that compares a client’s current plan and portfolio to a proposed one to help an advisor determine how it measures up against the client’s best interest.
“The idea is, it’s a feedback mechanism for them as they’re building up their service offering,” said Nicholas Owens, head of technical marketing at Morningstar. “It’s for any advisor who wants a handy readout on how their proposal measures up against the best interest standard. Right now, the firms who are, let’s say, taking the closest look at that, are the firms for whom this is new territory.”
The tool also takes Head of Retirement Research David Blanchett’s research on the value of efficient financial planning and, for the first time, instills it into a product.
“What’s really new here is that we’re putting those measurements of what financial planning and advice are worth into the mix,” Owens added. “Historically, especially in retirement accounts when they were held to a suitability-only standard, it’s really just, is this stock or fund or whatever OK for this person at this time? Versus the big picture of best interest.”
Blanchett estimates that by helping clients define and reach their financial goals, taking into account things like tax-efficiency, retirement planning and goals-based needs, they can add more than 20 percent to their income in retirement before fees.
The Best Interest Scorecard measures proposals through three different aspects: investment value, or the expected returns and costs of 97.5 percent of mutual funds and exchange traded funds; client fit, the overall efficiency of the asset allocation and the ability to match a client’s risk profile; and service value, or the net benefit of financial planning services.
Advisors can also capture other client factors, such as appreciated employer securities, financial health of the investor and employer, or the desire to work with an advisor.