Morningstar to Acquire Ibbotson Associates

According to the announcement, Morningstar is to acquire Ibbotson for $83 million in cash.Ibbotson will bring approximately 70,000 advisor clients and 700 institutional clients to Morningstar for a total of more than 210,000 advisors and 1,200 institutions, in addition to Morningstar’s more than four million individual clients.

The Business of Advice

Currently Ibbotson has approximately $3.5 billion in assets under management for participants in 401(k) and other defined contribution plans and manages assets for several major retirement plan providers, according to the announcement.   Morningstar has $225.9 million in assets under management for retirement accounts, and provides a suite of retirement planning services through approximately 69,000 plan sponsors and 30 plan providers for approximately 12 million retirement plan participants.

Joe Mansueto, chairman and chief executive officer of Morningstar, told PLANSPONSOR, “Asset allocation plus security selection equals better advice for investors.   Marrying [Ibbotson’s] asset allocation engine with our selection capabilities will provide better advice for investors.”

Mansueto said that he believes the key in the advisor business for retirement plans is to have a broad-based solution for different participant needs.   While some participants are very comfortable with managing their own accounts, others want a professional to manage their accounts for them, so a dual-pronged effort of an online tool and outsourced advisor meet both needs.   Ibbotson was an early leader in providing this combination, he said.

In addition, Ibbotson’s managed retirement accounts are hosted by the provider, while Morningstar hosts theirs.   Mansueto says the acquisition will enable Morningstar to provide both types of solutions for clients.

Finally, Mansueto told PLANSPONSOR that Ibbotson is involved in putting hedge fund of funds together, so the acquisition will introduce Morningstar to that emerging market.   Meanwhile, he said Morningstar is optimistic about expanding Ibbotson products into overseas institutional markets.

Results of the Deal

Ibbotson’s major product lines are investment consulting and research, planning and analysis software, investment advice, educational and marketing services, and a line of presentation materials.   An integration team will review both companies’ product lines to determine product-level marketing plans, according to a Q & A on Morningstar’s Web page.  

Morningstar plans to keep Ibbotson’s name.   Mansueto said Ibbotson is a well respected brand and “represents the industry standard when it comes to asset allocation.”

Roger Ibbotson, the firm’s founder, and Mike Henkel, President of Ibbotson, plan to stay with Morningstar.   Morningstar said in its Q&A that decisions concerning the 1,120 Morningstar staff and 150 Ibbotson personnel will be made as the integration team concludes its work.

PLANSPONSOR’s 2005 Advice Buyer’s Guide results on Ibbotson can be found  here .  Results for Morningstar can be found  here .  

A fact sheet and Q & A can be found  here .  

The acquisition, Morningstar’s largest to date, is expected to close in the first quarter of 2006.