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Nov. 6, 2023 |  By: Annelise Hanshaw - Missouri Independent

Missouri treasurer refuses Morningstar data request, accusing company of anti-Israel bias

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By Annelise Hanshaw - Missouri Independent

Missouri State Treasurer Vivek Malek is refusing to turn over information about a state-sponsored education savings plan to an investment company he accuses of having questionable ties to China and an anti-Israel bias.

Malek expressed his concerns about Morningstar in a letter to the company refusing its request for information about MOST 529, the Missouri-sponsored savings plan that allows customers to invest in education, apprenticeships and retirement. 

Morningstar is a financial services company headquartered in Chicago that posts insights on stocks, savings plans and other investments. It was seeking information from the treasurer as part of its rankings of state 529 plans.

On Thursday, the company placed Missouri’s MOST 529 in the bronze category — dropping from last year’s silver rank.

It is one of seven state plans that Morningstar downgraded in this year’s rating. Missouri and South Carolina were the only states to not provide the requested data, Morningstar told The Independent.

A day before the rating was published, in a meeting of MOST 529 board members and advisors Wednesday, Malek said he didn’t know how MOST 529 would score.

In his letter to Morningstar, he wrote that he questioned the evaluation process.

“After evaluating the (request-for-information) process as conducted over the past few years, it appears the only consistent features of Morningstar’s process are shifting expectations and ever-changing personnel,” he wrote.

The State of Florida has publicly criticized Morningstar, placing it on a list of “scrutinized companies” it alleges is discriminating against Israel. 

Morningstar has disputed this claim.

In 2022, former Missouri Attorney General Eric Schmitt launched an investigation into Morningstar’s environmental, social and governance practices, and 18 states joined the probe.

Malek referenced these policies in his letter.

“China, a nation of 1.4 billion people, actively persecutes religious minorities and garners Morningstar’s business, while Israel is chastised because it fights to survive,” he wrote in his Oct. 24 letter. “Morningstar’s priorities appear to be exactly backwards, championing its ideologically-driven (environmental, social and governance) initiatives via its flailing ‘Systainayitics’ unit instead of standing on the right side of justice.”

Public offices are required to respond to requests for documents through Missouri’s Sunshine Law, but they do not have to compile data or create new documents for a requesting entity.

Morningstar told The Independent it had sufficient data to produce its ranking without the office’s compliance, and the lower score is the result of the staff change following former Treasurer Scott Fitzpatrick’s switch to State Auditor.

The change in Missouri’s rating resulted from recent turnover within the state’s treasury department, which included the deputy treasurer and a senior investment coordinator. The state has acted in the best interest of plan participants in the past, but these departures, particularly in a modestly sized team such as this, create uncertainty around future oversight,” Morningstar said in a statement. “Even so, a bronze rating reflects the strong regard we have for the plan.”

Morningstar’s website outlines three pillars that plans are judged on, but Malek wrote that there is no indication of the weight given to each metric. He would also prefer to have a sustained relationship with an analyst to repeat the evaluation process annually but has not had that experience.

Morningstar’s 529 rating service is a pay-for-use service,” Malek told The Independent in a statement. “Additionally, there is no guidance on the weight assigned to various evaluative metrics from one year to the next, and the formal interview component is conducted by different junior-level employees or interns each year.”

During Wednesday’s meeting, Deputy Missouri Treasurer Clayton Campbell said it remains “entirely unclear to me how they assign weight to the various criteria they use to evaluate anyone, including us.”

“As a result,” he continued, “it makes it very difficult to obtain any kind of predictability to what we need to do as a plan and how we need to react as a plan in order to appease Morningstar.”

Morningstar told The Independent its weighting is public, with 30% weight on “people,” 30% on “process,” 30% on “price” and a 10% weight on the “parent” pillar  which assesses the organization overseeing the plan.

Board members had few questions, apart from the impact to stakeholders.

“We do not see an impact to new accounts or cash-flow customers by either rating upgrades or downgrades,” said Stewart Duffield, representing investment management company Vanguard.

“And I don’t think Missourians enrolling in the plan are looking to Morningstar for their rating,” Malek said.

Some complained during the meeting that Morningstar seems to influence industry trends.

One board member asked why half of the plans are seemingly switching to target dates.

“Honestly, I think that Morningstar has played a big role,” said Mike Bibilos, a relationship manager at financial services company Ascensus, “Because they are out there, and they are doing the annual review, and they are pushing us.”

Andrew Zumwalt, an associate teaching professor and program chair in the University of Missouri-Columbia’s personal financial planning program, told The Independent that Morningstar plays a “small role” with clients.

“Morningstar guidelines are a great overview, but a financial planner really needs to dig a little bit deeper and say, ‘Okay, what are the details of this plan? Is this plan still a good idea for the clients?’” he said.

Zumwalt calls 529 plans the “Swiss-army knife of financial planning” because of their growing versatility. They were originally used to exclusively fund higher education but now can save money for K-12 education, apprenticeship programs and, new for 2024, retirement through Roth IRAs.

Despite the decision to not comply with the request for information, Zumwalt said Missouri has “a pretty solid offering.” He said the state has fewer fees and restrictions than others.

“Missouri is unique in that state law allows for anyone to invest in a 529 from any state, and you’ll get the state income tax deduction on your state tax return, so that provides a little bit of competition,” he said. “If Missouri wasn’t a good option, then residents of Missouri could choose a different 529 and invest and get the deduction there.”

Bibilos said Wednesday after being “down all over the place in 2022,” MOST 529 is doing better this year.