Morningstar returns to CIFSC

After a year apart, Canada’s two leading mutual fund classification systems are coming together once again, as Morningstar Canada has agreed to rejoin the Canadian Investment Funds Standards Committee.

“We are delighted to welcome Morningstar back,” said Chris Adair, chair of the CIFSC and general manager of Fundata Canada Inc. “With this announcement, our mutual goal of re-establishing a single set of categories for the industry is at hand.”

Morningstar split from the CIFSC in February 2006 over concerns of lethargy on the committee, which was slow to overhaul its categories.

“We were concerned with the way the fund categories were being monitored and the rigour associated with that,” said Scott Mackenzie, president and CEO, Morningstar Canada. “There were bond funds sitting in equity categories and that sort of thing.”

Morningstar was also frustrated with the slow pace of overhauling the existing categories, which, Mackenzie says, was having an impact on Morningstar’s comparative analysis products.

“Comparing apples to oranges was just not a tolerable situation, so we left,” he says. “It was a very difficult decision on my part, as I was one of the founding members of the committee in the first place — I was founding chairman.”

The result of the split was a little chaotic for investors — and reporters — who were faced with two different systems for grouping funds.

The departure of Morningstar and prospect of competition seemed to inspire fresh vigour on the CIFSC, which rolled out a fresh set of fund categories within months. Morningstar unveiled its classification system in October 2006.

“The good news is that the rigour on the CIFSC side had clearly increased,” says Mackenzie. “Clearly their commitment had been re-established.”

He says Morningstar’s concerns have now been addressed, though, including the removal of voting rights of trade groups, such as IFIC. There was some concern that allowing representatives of the fund industry itself to vote on the categories could call into question the independence of the committee.

“Trade groups can continue to participate actively with the committee, but they have lost their voting status,” Mackenzie says.

A new set of categories will now be developed, and will take the best from both systems. The CIFSC will publish the new categories and call for comment from both the industry and the public in general before implementation.

“The current proposed categories are not terribly far from those that we currently use ourselves,” Mackenzie says.

CIFSC is a volunteer organization, comprised of competing yet collaborative organizations, including Canadian Life and Health Insurance Association, Cannex Financial Exchanges, FP Datagroup, Fundata Canada, FundSERV, The Globe and Mail, IFIC, Lipper, Morningstar Canada and individual consultants.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com