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Lipper Vies for Intermediary Business


NEW YORK - Lipper is honing in on Morningstar's dominance in the intermediary market. "Absolutely, there's no question that we are" going after the intermediary business so dominated by the Chicago data behemoth, said Robin Thurston, director of research at New York-based Lipper, when asked if that is Lipper's intent, following a "Lipper Leaders" press conference last week.

Although Morningstar has long been the leader in the financial planning and broker/dealer market, Lipper has its goals set high.

Let the battle begin.

"We're building tools, products and services, directly gauged for intermediaries," Thurston said.

Lipper unveiled the final three measures of its Lipper Leader rating system at the conference: total return, tax efficiency and expense. The two categories introduced last year were consistent return and preservation. Together, the five criteria, which Lipper is making available at no charge to individual investors, are designed to help them assess mutual funds.

Investors choose which areas are most important to them and then match funds that rate well in the system against those criteria. It is based on a five-point ranking system, with a Lipper Leader fund being the best and a ranking of five the worst.

Shooting Above the Stars

It is Lipper's contention that the new rating system is more valuable than Morningstar's five-star system. "The biggest difference is that [Morningstar] assumes that all investors are the same, where we actually have specific measures aimed at each individual, rather than saying one size fits all,'" Thurston said. "Things like capital preservation are a true investor's goal." Morningstar's five-star ratings "assume all different types of goals fit into one," Thurston maintained.

Lipper's system provides "diversity and [the] ability to tell different highlights about a fund," he said. This, he added, will be one of Lipper Leaders' strongest selling points.

Intermediaries will be able to use the Leaders system "to communicate about funds in different ways and then highlight those funds accordingly," Thurston said. "The underlying methodology, we believe, is superior to Morningstar's, [and] that's a big selling point for us, specifically the consistent return measure, [as well as the] preservation and tax efficiency" measures, he said.

20 Years Late to the Game?

Don Phillips, managing director of Morningstar, said the introduction of Lipper Leaders is logical, but he questioned the timing.

"It certainly makes sense, [but], frankly we kind of scratched our heads and said, Why have they ignored this market for so long?' I think that's one of the obstacles they're up against. Here's an audience that they could have served for the last two decades but they've chosen not to. It's a little hard when you've ignored an audience for years to make them believe that you care about them."

A potential flaw that could also hold Lipper back, Phillips said, is investors' need for simplicity. "I think it's a move in the right direction for them, but we had two ratings for a while, a category rating and a broad rating, and advisers and investors told us they hated it. I think [that] all of these new ratings based on past performances are somewhat limited and they're making a mistake by chopping it into five different areas.

Positive Spin

Phillips said another potential imperfection in the Lipper Leaders system is that it "won't tell you [about] a fund that is not a leader. They'll only comment if there is something positive to say about a fund. They wont tell you if the fund is in the second, third, fourth or fifth quartile. Ultimately, if you are not willing to criticize, your praise has limited value, and I think advisers will find that sort of lack of frank talk not to their liking," Phillips said.

Furthermore, Lipper's ratings system doesn't help intermediaries determine how to deploy a fund in a portfolio, Phillips said. This is a "mission-critical" issue, he said.

Asked whether Morningstar is going to launch any new products in response to Lipper Leaders, Phillips said, Morningstar offers "more [of] the fundamentals" as well as calculations, and information on style and ownership. "We think this more fundamentals/holdings-based approach is really the way that the adviser community is going."

"At the end of the day, all Lipper Leaders is, is another way of slicing and dicing past performance. That is not what advisers are looking for," Phillips said.