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I have 466K in a 403b thru my employer in a 2025 moderate model. Should I use Morningstar to manage?

Our plan offers the option for Morningstar to manage with a fee of .045% of my balance. I'm wondering if this would get me a higher rate of return vs me just using the asset mgmt model?

May 05, 2015 by Teri in  |  Flag
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Mitchell Zides Level 7

Your rate of return will depend on the market results so it's hard to say going forward which model will be the better option. I believe your decision should be based on your own personal risk profile. It's hard to answer this question without knowing your personal objectives, time horizon, tolerance for loss, and current financial situation. My advice would be to meet with someone to determine your willingness, ability, and need to take risks and also review current market risks. Then I would compare the 2025 moderate model with the Morningstar model to make the most appropriate recommendation for you.

Comment   |  Flag   |  May 07, 2015

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Morningstar will "manage" your account by pigeonholing you according to the input you give them on a questionnaire and giving you a recommended allocation that may change over time. However, a person with your level of assets should look into hiring an independent fee-only advisor who has the ability to have face to face conversations with you and provide ongoing service to you on a regular basis, answer your questions on financial planning, retirement and how to manage all your investments, including the 403b. You'll probably find it is a fraction of a percent more expensive than the computerized model that Morningstar uses but far more comprehensive and useful. Objective, experienced advice on financial planning when it is done on a stricly fee-only basis by someone who is willing to be a fiduciary is terribly important to your future and well worth the money. Consider interviewing more than one to make sure you get along well and check his credentials and regulatory history.

Comment   |  Flag   |  May 08, 2015 from Charlotte, NC

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John Essigman Level 17

Hi Teri,

I am in agreement with Mitchell and David. The performance of your portfolio will depend on what the economy does, how the markets react to it, and how you react when you look at your statements.

I am not a big fan of target date funds although they may be better option than guessing on which funds to use within a 403(b). I am only vaguely familiar with Morningstar’s portfolio management and not clear on their track record. However, David is correct in that they must use some form of input from you to determine what type of mix to use.

Spend the time to find a fee-only advisor to help you. Yes, there is a cost that may be higher than Morningstar or the target date funds but an advisor will evaluate the technical aspects of your financial position such as risk profile, goals, and time frame. In addition, there is an emotional side to investing that cannot be accurately determined on any input form.

Warmest regards
John Essigman

Comment   |  Flag   |  May 10, 2015 from Cleveland, GA

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Hi Teri,

Morningstar has an excellent reputation, and it appears the cost for their services is low compared to industry averages for funds generally. You did not mention the cost structure of the risk management model you are considering as a comparative. If you assume that market performance and instruments held are roughly equivalent, then cost is likely to be a factor that will affect you most. You should consider getting advice from an informed, qualified professional. Others have advised you to seek a "fee-only Advisor". This seems to be self serving advice from "Fee Only advisors". Studies have shown the the compensation method for your advisor don't affect the quality of advice. In fact, some commission advisors can provide you services at a lower overall cost, particularly if you don't trade often. Just a fun fact. I would recommend your advisor be a CFP, CHFC, AIF or some other recognized professional advisor, not just a product salesman. Best of luck.

Comment   |  Flag   |  May 15, 2015 from Bend, OR

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