DATE: May 5, 2010 

TO: Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

FROM: Morningstar, Inc. 

SUBJECT: 2010 Investment Advice Proposed Rule 

Thank you for giving us the opportunity to offer our comments on the proposed 2010 

Investment Advice Rule to help increase defined contribution plan participants’ access to highquality, unbiased investment advice. Legislation that makes plan sponsors feel more 

comfortable providing advice to their participants can have far-reaching benefits, not only for 

plan sponsors, providers of advice, and, most importantly, individual participants, but for 

society as a whole. If more individuals are better prepared for retirement, it enhances quality of 

life for our citizens and reduces strain on our economy. 

Through our subsidiaries, Ibbotson Associates and Morningstar Associates, Morningstar has 

been providing independent investment advice to defined contribution plan participants since 

the late 1990s. Today, more than 23 million retirement plan participants have access to 

Morningstar’s retirement advice and discretionary managed accounts through approximately 

156,000 plan sponsors and 23 plan providers. Ibbotson Associates and Morningstar Associates 

collectively manage more than $16 billion in discretionary retirement managed account 

programs. 

We applaud the Department of Labor for recognizing that these new rules do not invalidate its 

earlier regulations, exemptions, or guidance relating to the provision of investment advice. We 

believe that preservation of the current, independent advice programs, which operate either 

through a direct advisory relationship or under the model described in the Sun America 

Advisory Opinion, aligns with the Department’s intention to promote the use of high-quality, 

unbiased investment advice. Millions of plan participants currently receive independent 

investment advice and discretionary management under relationships that do not raise conflictof-interest concerns, and therefore do not require exemptive relief. As such, it’s important that 

the existing investment advice arrangements that were permissible prior to the Pension 

Protection Act of 2006 remain available for these individuals. 

While we commend the Department’s validation of the existing independent advice 

relationships, we are concerned by the language in the proposed rule that dictates the specific 

factors that need to be considered in providers’ advice methodologies. Generally speaking, 

mandating the exact parameters that advice providers must include in their advice calculations 

will inhibit innovation. We continuously update and refine our inputs, capital market 

assumptions, and forecasting and optimization techniques as we gain new insights, technologies 

advance, and the world financial systems evolve. Building and managing portfolios for 

individual investors are our areas of expertise. We have been strengthening our approaches and 

producing groundbreaking academic research on these topics for decades. Legislation that 

dictates the key tenants of the advice framework would, in the long run, stifle the evolution of 

advice. 
In addition to our general concerns about inhibiting innovation, we are concerned by the 

specific requirement that computer models consider only historical asset class returns. What 

constitutes “historical” asset class returns is open to interpretation and can have a large impact 

on results. Government bonds, for example, returned almost 10% per year on average over the 

last 30 years, but just 5% per year on average over the last 84 years. In addition, the use of 

historical asset class returns in optimization and forecasting is not a best practice or an industry 

standard. The use of purely historical asset class returns would lead to inflated wealth forecasts 

and favor higher-risk assets in optimizations. Forward-looking capital markets assumptions, 

developed by in-house investment committees, are standard inputs among experienced wealth 

managers. 

We are also concerned by the requirement that computer models not consider historical returns 

of individual funds or other investments. We understand the Department may be concerned that 

investment experts and independent auditors may have difficulty evaluating whether or not 

computer models factor short-term investment fund performance in a manner that does not 

favor affiliated higher-fee funds. And, we completely agree with the Department that lower fees 

are, in general, good for investors, and that lower-fee portfolios will, on average, outperform 

higher-fee portfolios. 

However, we believe that there is value in examining how a specific asset class or individual 

investment has performed over time. Best institutional practice is not simply to construct the 

cheapest possible portfolio, but is rather to combine careful attention to costs with the judicious 

purchase of value-added money management services. Retail investors should not get 

something less than the best institutional practices. 

Notwithstanding our concerns over the methodology mandates, we believe that this legislation 

creates an opportunity for more Americans to receive quality investment advice that will help 

them achieve secure, comfortable retirements. Again, thank you giving us the opportunity to 

provide comment on the regulation. We look forward to continuing to work with the 

Department to increase access to quality investment advice for all workers. 

Sincerely, 

Joe Mansueto 

Chairman and Chief Executive Officer 

Morningstar, Inc.