MutualFundWire.com: Where were the Advisors?
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Wednesday, July 19, 2000

Where were the Advisors?


Who was attending Morningstar's annual conference? I am a veteran of four Morningstar conferences and eight Schwab Impact conferences and, it is fair to say, I know personally or by sight most of the major RIA-style mutual fund advisors in the industry. Yet, I recognized only one other advisor at this conference. I am certain that I missed a few in the hubbub -- the conference was very well attended, and every session that I attended was packed. Nevertheless, I was struck by the lack of so many of the better-known advisors. This conference is a standout. What might be their reasoning for not attending?

  • Many RIA's are re-focusing their practices to use more individual stocks and fewer funds. I do not think this is it, and I speak from experience. I have integrated a large-cap individual equity strategy into my business, yet still use funds and still have a thirst to hear managers and learn what they are doing. In fact, it is that much more enjoyable and important because with an individual equity strategy, I am that much more interested in hearing what the best stock pickers around are doing. Most money managers want to hear and bounce ideas off of each other.

  • Many RIA's already have sufficient exposure to fund managers without having to attend the Morningstar conference. Again, I do not think so and again I speak from experience. Access to managers has increased for larger and more established RIA's -- I am frequently invited to meet with managers when they come to New York, and I am advised of most of the conference calls sponsored by the fund companies.

    Individual meetings with managers are invaluable; conference calls are frequently not. Either way, neither one substitutes for one of the most compelling aspects of the Morningstar conference: panels of managers interacting with each other and exchanging ideas. The Morningstar panels - which tend to be very competently moderated by Morningstar personnel - allow the managers to be more relaxed and off-the-cuff in their comments. In addition, the panels provide a wonderful opportunity for advisors to hear and contrast different managers' responses to the same questions and learn their different approaches to the same issues. The information gleaned from the panels is not available from the typical prepared comments made by managers in the group lunches and breakfasts sponsored by fund companies when a manager comes to town.

  • Many RIA's use a set group of funds and do not find value added in attending the conference if none of "their" managers are speaking. Sadly, this probably has some truth to it. Many advisors are "asset allocators" following principles of modern portfolio theory to construct portfolios populated by mutual funds. The advisors rely on MPT data provided by either Morningstar or the fund companies to evaluate whether a fund "fits" within their asset allocation framework. If a fund fits, fine, the RIA will talk with the manager to do final "due diligence." After the manager interview, little incentive remains for the RIA to find new funds or interview new managers until the existing fund is no longer performing well.

  • Many RIA's are highly skilled financial planners but not true money managers and thus do not recognize or are not trained to find real value in speaking with fund managers. Again sadly, this probably has some truth to it. Many advisors do not have the experience or training to interview managers in a way that "looks under the hood" of the portfolio and sheds light on what the manager is doing and why. Most questions from advisors to managers tend to be macro-related, e.g., expectations of the next Fed move, or market valuations in general, etc. or worse, relate to technical fund facts such as expense ratio, assets under management and turnover ratio. Few questions go toward the portfolio i.e., the manager's investment process or the rationale for holding specific names in the fund. Absent these skills, many advisors see little value in traveling to the conference where the opportunity for that type of questioning abounds.

    In the end, I believe it has something to do with all of the above combined with the fact that the RIA community has less impact as a constituency on Morningstar and its conference than it does on other organizations and their conferences. Morningstar remains refreshingly independent and fund end-user oriented. It does not receive fees from fund companies and holds no leverage over them. It does not charge RIA's for its product based on assets under management. It does not tier its services to clients based on assets under management. It provides independent analysis and commentary on mutual funds.

    For this advisor, that independence is what sets the Morningstar conference apart as a terrific experience, full of opportunities to interact with and learn from some of the best investment minds in the business. Morningstar has created a successful forum for fund companies and their constituents to learn about and from each other. For the true investment advisor, this can only help improve what they are paid to do: provide high quality independent investment advice.

    Richard Bregman is President of MJB Asset Management LLC, a New York City-based advisory firm. He can be contacted by emailing Staff@InvestmentWires.com


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