Compliance March 17, 2007
Regulators Still Probing Morningstar Advice Practices
In its most recent filing with the Securities and Exchange Commission, Morningstar Associates, LLC said that the SEC has ended an investigation into the firm’s practices, while the Department of Labor and New York Attorney General’s office appear to be taking their investigations to the next level.
Reported by Nevin E. Adams
According to the filing, in February 2005, Morningstar Associates, LLC, a wholly owned subsidiary of Morningstar, Inc., received a request from the Securities and Exchange Commission (SEC) for the voluntary production of documents relating to the investment consulting services the company offers to retirement plan providers, including fund lineup recommendations for retirement plan sponsors. In July 2005, the SEC issued a subpoena to Morningstar Associates that was virtually identical to its February 2005 request.
In December 2004, Morningstar Associates received a subpoena from the New York Attorney General’s office seeking information and documents related to an investigation, similar in scope to the SEC subpoena described above.
Similarly, in May 2005, Morningstar Associates received a subpoena from the United States Department of Labor, seeking information and documents related to an investigation. Morningstar said that the DoL subpoena is “substantially similar in scope to the SEC and New York Attorney General subpoenas.’
Subsequent Moves
Subsequently, the SEC focused on disclosure relating to an optional service offered to retirement plan sponsors that select 401(k) plan services from ING, one of Morningstar Associates’ clients. In response to the SEC investigation, ING and Morningstar Associates revised certain documents for plan sponsors to further clarify the roles of ING and Morningstar Associates in providing that service. Those revisions also help reinforce the fact that Morningstar Associates makes its selections only from funds available within ING’s various retirement products, according to the filing.
On January 24, 2007, the SEC notified Morningstar Associates that it ended its investigation, with no enforcement action, fines, or penalties. However, that same month, Morningstar Associates received a Notice of Proposed Litigation from the New York Attorney General’s office. According to the SEC filing, that notice centers on the same issues that became the focus of the SEC investigation described above, and provides Morningstar Associates an opportunity to explain why the New York Attorney General’s office should not institute proceedings. The filing says that Morningstar Associates promptly submitted its explanation, and that, to date, the New York Attorney General’s office has not taken any further action.
Also in January 2007, Morningstar reports that the Department of Labor issued a request for additional documents pursuant to the May 2005 subpoena, including documents and information regarding Morningstar Associates’ retirement advice products for plan participants. Morningstar Associates continues to cooperate fully with the Department of Labor and the New York Attorney General’s office, according to the filing.