Morningstar Canada of Toronto will begin charging Canadian funds a licensing fee April 30 for the use of its name in fund advertisements, a departure from its policy for U.S. firms, according to Scott Mackenzie, vice president of Morningstar's Canadian operations.

The move could force Canadian funds to reconsider using the firm's rating system in its advertising, according to Stephen Kangas, vice president and managing director of TD Asset Management of Toronto.

"We'll have to go back and look at the fee," he said. "It might be a trade-off. If we don't use the ratings and our competitors do, we can get burned. But, what if everyone boycotts this? It's a new line drawn in the sand. Should we exploit this opportunity or are we helping build the Morningstar brand name?"

Morningstar has not decided what it will charge Canadian firms to use the company's name in advertisements, Mackenzie said.

"There are some fund companies that don't have the resources to pay for this, so this is the issue we are trying to decide," he said. "What's an equitable fee, what's fair?"

The decision to charge a licensing fee was made by the Canadian office alone, Mackenzie said.

"If a company has an asset, they try to put a price on it," he said. But, that price is open to debate, he said.

"It's important to get a better understanding of fund companies' marketing programs and that is why we're opening this dialogue," he said.

Global Strategy Investment Funds of Toronto is one of the first Canadian fund companies to use its Morningstar rating in a print advertisement, said Kristen Peterson, a marketing director for the company.

"Morningstar is a very powerful brand name and there is a lot of carry-over from the states," she said. Global Strategy and Morningstar are negotiating a fee for running the ad, Peterson said.

Morningstar's licensing fee should be reasonable, she said.

"I don't think it's worth paying an outrageous amount for this," Peterson said. She did not say what she would consider to be reasonable.

The decision to charge Canadian fund companies a licensing fee has raised a great deal of debate in Canadian media. In a recent article (3/17/00) in The Globe and Mail, Canadian fund executives expressed concern that the fee might jeopardize Morningstar's objectivity in rating funds.

Mackenzie said there was no such danger.

"We've issued our methodology," he said. "It's simply impossible [for Morningstar to lose its objectivity] because everyone has access to the ratings. Anyone can calculate Morningstar ratings and many fund companies are doing this."

Morningstar began rating Canadian funds last month. Morningstar moved into the Canadian market with the acquisition of Portfolio Analytics of Toronto late last year. Portfolio Analytics was the leading Canadian provider of investment fund information at the time of the acquisition (MFMN 12/9/99). Since then, Morningstar acquired BellCharts, a mutual fund data provider, also based in Toronto. Morningstar now has approximately 50 percent market share in the fund information and tracking business in Canada, Kangas said. Its largest competition comes from communications companies Thomson Corp., (the parent company of the publisher of this newsletter), and Southam, both of Toronto, he said.

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