(by Dr. Goldfinger)

Mutual funds beware of being involved into a scandal connected with a fund tracker Morningstar, which has an option to rate mutual funds due to their corporate governance.

New Morningstar Fiduciary Grade that grades funds from A to F due to five main features, was met rather critically as it can lead to over $3 billion settlements for allowing market timers to get into the funds at the expense of investors.

Morningstar’s new grading criteria are: corporate culture, board composition, management incentives, fees and handling regulatory issues.

But funds do not think the company have the skill to judge company’s corporate governance. For instance, three top fund groups Fidelity, Vanguard and American funds say they won’t give the information on their manager compensation to Morningstar.

Morningstar says the grading is now being done by its 30 analysts, familiar to the funds.