, Crain News Service
CHICAGO -- Morningstar Inc. is looking to become the 401(k) planner for the masses. Or at least the portion of the masses who use the Internet.
Before the end of the year, the company plans to offer an online retirement planning service for 401(k) participants, in which investors plug in data and get a recommendation on how to allocate their assets.
Initially it will be offered strictly to 401(k) plan sponsors, although Morningstar executives acknowledge their eventual goal is to include brokerages and insurance companies as well as the general public. The company did not offer a timetable.
"We will likely have other distribution than sponsors," said John Rekenthaler, research director at Morningstar.
The most sensitive part of the plan -- offering this service to individuals -- could pose a threat to financial advisers, particularly those who specialize in offering retirement services.
Necessary move
It's a necessary competitive move, as a growing number of firms pump out their own mutual fund analysis. But it does raise eyebrows among a core Morningstar constituency: advisers. Some of them feel Morningstar is stepping on their turf, although they acknowledge this would hardly be the first time a company that provided services to them had played both sides of the fence.
"It does cause us a little concern," said Helyn Bolanis-Parker, president of Parlan Financial Corp., Toledo, Ohio. "There's a part of me that says 'You're cutting into my business.' "
Mr. Rekenthaler and CEO Don Phillips, however, maintain that Morningstar isn't trying to go head-to-head with its customers. They contend that 401(k) participants are underserved by planners -- a position with which most would agree.
"Our intention with this is not to present it as an either/or choice of going to a professional or getting the service electronically," Mr. Phillips said, adding that advisers will be able to use the service to help their clients.
Added Mr. Rekenthaler: "We're hoping that we will turn on a whole new segment of financially uninvolved people that will start thinking about financial planning issues. If so, that's good for financial advisers, because they will get the spillover."
Sid Blum, an adviser in Northbrook, Ill., agrees that there is plenty of room and that most planner clients have more needs than 401(k) asset allocation. "I don't think one of our clients would see this as a substitute," he said.
Morningstar already provides consulting and educational services for more than a dozen 401(k) plans. Its latest offering, to be available in November or December, is an online service that will help plan participants determine retirement goals and will recommend specific allocation options.
Not alone
Morningstar is far from alone in this market. Financial Engines, a Menlo Park, Calif., company co-founded by Nobel Prize-winning economist William Sharpe, offers such a service. So do the 401k Forum of San Francisco and Rational Investors of Cambridge, Mass.
So far, such firms have made all but imperceptible inroads into the 28 million-participant, $1.1 trillion 401(k) market. Perhaps 80,000 participants used the services at the end of 1998, according to Joshua Dietch, an analyst for Boston research firm Cerulli Associates.
Morningstar faces challenges in catering to this market. For one, it has to craft its design and information to appeal to first-time investors rather than the clientele of brokers.
It's essential that the service be easy to use -- especially in light of the ire that was aroused by recent problems the company encountered when it revamped its Morningstar.com site, Mr. Phillips said.
Also, while the 401(k) market is far from tapped, Morningstar may suffer from being late to the game.
But Morningstar has the advantage of name recognition and the fact that it already works with some 401(k) plan sponsors. It plans to market the product to such companies, which would in turn open it up to their participants.
It also wouldn't be the first to target other financial services companies. That's what Financial Engines did earlier this year, striking a deal with Merrill Lynch & Co. that gives it access to employees in plans the wirehouse provides.
One possible strategy for Morningstar is allowing participants in 401(k) plans with which it hasn't contracted to visit its Web site and do their allocations.
