The first wave of baby boomers is nearing retirement and Morningstar Canada is getting ready by developing a new online tool to help advisors calculate the stream of income clients will need upon converting RRSPs to registered retirement income funds.

As part of a staggered rollout of new services, the Canadian arm of the leading mutual fund research company also plans to double its staff of analysts to six, triple the number of yearly fund analyst reports and introduce analyst reports on 16 fund sectors. It also plans a recommended mutual funds “pick list,” perhaps even a “pan list,” in the coming year, says senior analyst David O’Leary.

In October 2005, the Toronto-based company also launched its new “industry sector concentration score,” billed as an objective measure of how different a fund’s sector weightings are from its market benchmark and an indicator of whether a fund is actively managed. It is available to advisors who subscribe to Morningstar PalTrak and Morningstar Advisor Workstation.

Other future initiatives the company is considering include introducing a revolutionary new rating system for individual fund managers and producing analysts’ reports on individual stocks, says O’Leary. It is also assessing whether there is a sufficient market in Canada to follow its U.S. parent in offering expanded premium paid content geared toward the retail investor on the Canadian Web site (www.morningstar.ca). The site currently offers only free content, O’Leary says.

The draw-down

“Our single biggest rollout this year is going to be the ‘retirement income planner,’ a whole product that allows advisors to plan for their clients’ retirement,” he says.

Traditionally, financial advisors have focused primarily on accumulating wealth for their clients. The new tool, he says, will help determine the best way to construct a RRIF portfolio, given a client’s savings and income needs, tax rate and the prevailing interest rates.

“Many [advisors’] clients are at that stage now when they are converting and having to draw on their income,” O’Leary says. “How do you plan for that? What are the taxation issues?”

By age 69, an individual must either close his or her RRSP and pay taxes on the withdrawn income, convert it into a tax-sheltered RRIF from which a stream of payments must begin to be withdrawn one year later, or buy an annuity.

“You have a growing portion of the population reaching retirement age now — all of the baby boomers. Previously, the focus of financial advisors has been on how investors reach their retirement goals,” says O’Leary. “A whole part of the puzzle was missing. You’re at retirement, you have the money you’ve saved; now how do you convert it to a RRIF and start drawing down from it?”

Isabell Grygianiec, Morningstar Canada’s communications manager, says it is not yet known when the new retirement income planner tool or the other new product initiatives will be available to subscribers of the advisor Web site (www.morningstaradvisor.ca).

However, she describes how the new product will work: “Advisors can use it to illustrate how a change in the withdrawal rate, the asset allocation or investment selection may affect a client’s financial goals.

“The program will walk advisors through the process of modelling the impact of taking early social security, accessing home equity, working part-time and other scenarios. It also will offer probability analysis to estimate the likelihood of a scenario’s success and produce a short report to illustrate each scenario.”

Stock analysis

Morningstar’s parent company, Chicago-based Morningstar Inc. , produces an annual list with ratings of and written commentary on recommended stocks entitled Morningstar Stocks 500, which it sells for US$35. The U.S.-based Web site (www.morningstar.com) also offers premium paid-subscription content geared toward the retail investor for US$14.95 a month.

Morningstar Canada is also considering rolling out premium, subscriber-only content for its Web site, says O’Leary: “That’s still in the planning stages. The biggest thing is gauging whether there’s a Canadian market for it. There’s a lot more do-it-yourself investors in the U.S., where investors are willing to pay for premium content.”

As well, Morningstar Canada is contemplating a plan to rate individual fund managers, as well as the funds, says O’Leary, who notes there are about 1,000 managers of Canada’s 5,000 or so investment funds. The rating would follow a manager who switched to another fund, in order to help advisors and investors assess a fund’s expected future performance.

@page_break@However, O’Leary notes, “That latter one is a more distant project. It’s more in the idea stage.”

There are several complications that would have to be worked out in order to rate managers, such as how much weight to give to a manager who has achieved stellar results while working as part of a management team, for instance.

Grygianiec says the company has not yet decided whether it will proceed with fund manager ratings, and will announce the launch dates of new products as they become available.

In December, Morningstar Inc. announced plans to pay US$83 million for Ibbotson Associates, an asset-allocation specialist that sells presentation services, software, educational products and research to advisors and planners. The deal is expected to close shortly. IE