The Morningstar Fiduciary Grades: A Critical Analysis

48 Pages Posted: 21 Aug 2010

Date Written: October 14, 2004

Abstract

This paper examines the “Fiduciary Grade for Mutual Funds” developed and released by Morningstar, Inc. In particular, it examines the utility of the Fiduciary Grades as a tool for bank trust departments and other corporate fiduciaries that invest fiduciary assets in mutual funds. This paper concludes that the Fiduciary Grades are a flawed investment tool because they do not encompass all of the relevant factors an investor should consider when investing in mutual funds, apply questionable standards, and are not a substitute for the exercise of fiduciary discretion with respect to an individual fiduciary account. The Fiduciary Grades have a limited focus and are not a reliable indicator of a mutual fund’s compliance record, quality of fund management, or suitability as a fiduciary investment. Unquestioning reliance on the Fiduciary Grades could result in misguided investment decisions.

Keywords: Morningstar, Fiduciary Grades, Fiduciary, Investment, Mutual Fund, Rating, Investment Tool

Suggested Citation

Fein, Melanie L., The Morningstar Fiduciary Grades: A Critical Analysis (October 14, 2004). Available at SSRN: https://ssrn.com/abstract=1662490 or http://dx.doi.org/10.2139/ssrn.1662490

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