The potential for conflicts of interest after Morningstar Inc. becomes a public company has some consultants, plan sponsors and mutual fund companies concerned, but few believe going public will prove a major problem.
"Absolutely there is the potential for conflicts of interest," said Fred Barstein, founder, president and chief executive officer of The 401(k) Exchange, Lake Worth, Fla.
The conflicts are particularly apparent in the defined contribution business because Morningstar rates the mutual funds that are used in most defined contribution plans. After it goes public, some of the mutual fund companies that Morningstar rates will most likely also be owners of Morningstar stock.
"It's a lot like the conflicts on Wall Street when company analysts that are making buy and sell recommendations for stocks also work with investment bankers to win these companies' investment banking business," said one consultant who didn't want to be named.
"Their position of being unbiased — it's one of those things that remains to be seen, but questions about it could come up," added this consultant. "I don't think anyone's going to jump ship now until they see how they behave."
"The proof will be when they issue new ratings (after they go public). If it looks like their (Morningstar's) ratings have been affected by the fact that some mutual funds own their stock, it will hurt the company," said this consultant.
He noted Morningstar has competitors in the rating business, including Lipper Inc., New York. "They (the mutual fund companies) can use another rating agency if they feel there is a bias."