A new fund research firm is staking out territory in the Canadian market. Lipper Inc., a division of London-based Reuters Group, expects to start signing institutional clients in Canada within a month.

“The people we’ve met so far are eager to look at an alternative to their current product, whatever that may be,” says Lipper’s head of North American research, Jed McKnight, who is leading the charge in Canada from New York.

Lipper, which jumped into the Canadian market in July, is introducing its Hindsight software, with features such as fund fact sheets and data feeds. The Windows-based fund performance software allows for risk and reward analysis across the 130,000 funds that Lipper covers, including those in the U.S. and other foreign markets. It may follow up with further fund analysis and research next year, says McKnight, who adds that Lipper will piggyback on Reuters’ office in Toronto at first.

While fund companies are reticent to comment about the arrival of a player into a market that’s dominated by Morningstar Canada, there’s no doubt they’re listening to Lipper’s pitch. Morningstar has been able to command substantial licensing and marketing fees with very little pricing pressure. The Globe and Mail’s GlobeFund software competes to some extent but has a different client base.

“Lipper is shopping around its software package to compete with PalTrak, which has dominated in Canada for many, many years,” says Dan Hallet, president of Windsor, Ont.-based Dan Hallett and Associates Inc. , an independent research firm. He has not yet tried Lipper’s new software. “[Lipper] has the resources and it will make a formidable and good competitor.”

Lipper expects to be able to compete eventually on price and product in Canada. “When you have this sort of competition in the marketplace, it usually ends up being good for the users because you’re able to keep prices realistic, keep an eye on service and focus on product inno-vation,” says McKnight.

For advisors, Lipper’s arrival to Canada may be especially timely and interesting, considering the recent controversy over fund categorization. Earlier in the year, Morningstar dropped out of the Canadian Investment Funds Standards Committee, the tiny but important organization that standardizes the way mutual funds are categorized in Canada — an organization unique to this market.

When it left the CIFSC, Morn-ingstar said the categories were “deeply flawed” and cited the committee’s lack of urgency in setting new categories, which originally had been due last summer. Many industry players said it was an unfortunate if necessary rift.

Now, as the CIFSC releases its revamped fund codes, Lipper has stepped into the breach left by Morningstar.

“Having some standardization reduces confusion. In the U.S., everyone has their own categorization system,” says McKnight. “With any classification system in the world, it’s evolving, and you always have to monitor, look for new methods. The committee is doing a good job of responding to market needs.”

Ralf Hensel, CIFSC chairman and also legal counsel for the Investment Funds Institute of Canada, says that the changes have been well received, with only minor tweaking here and there.

“That’s partly down to work that went in up front,” says Hensel, who says there won’t be any other substantial changes for some time. “There was a lot of input and feedback on early drafts. The industry knew what to expect and knew how the changes would affect their funds.”

Advisors may notice that more than 800 funds have been recategorized into more robust categories that increase thresholds for classification “purity.”

The CIFSC applies various new tests and thresholds to funds to determine what categories they fall into, all of which is available for viewing on its Web site, www.cifsc.org.

“You can see what tests are applied and in what order. That’s probably the biggest and best combined change — the transparency,” says Hensel.

Coincidentally, Morningstar may be in the midst of negotiating a truce with the CIFSC. Morningstar president Scott Mackenzie is considering the new fund codes and is speaking with the CIFSC.

“We’re seeing if there’s some way we can make this work. We’re still in discussions. But I don’t expect them to take much longer and I’m not sure which way it’s going to go,” says Mackenzie.

He says the arrival of Lipper, a potentially serious competitor, in Canada had no bearing on the spirit of co-operation, although he acknowledges it may look that way.

@page_break@“We enjoy market dominance, as it stands. Lipper is a much bigger force in the U.S., but I don’t see it motivating us — not at this point,” says Mackenzie. “I have a lot of respect for Lipper. It has a different approach, and that provides choice for the market.” IE