Thank you for sharing this - people don't realize how bad this...

Thank you for sharing this - people don't realize how bad this is because they haven't worked in the funds management industry before.

Just to explain to people, companies like Lonsec, Zenith & Morningstar have a 1-5 star rating on funds, often broadly known as the following:

• Sell
• Do not invest additional monies
• Investment grade
• Recommended
• Highly recommended

To state the bleeding obvious, advisers have an obligation and a job to deliver returns for their clients and rely on these ratings to determine which funds to add and remove from what's known as "approved product lists."

Usually, most adviser groups will keep recommended and highly recommended funds, and most of the money will go to the latter. Anything below "recommended" is usually terminated from the list, and client monies are redeemed from those funds and invested in something else that makes the cut.

Lonsec is like the Standard & Poor's of fund ratings. Their downgrades mean that more advisers and also HNW investors and instos who look at these ratings will lose confidence in Magellan and will terminate relationships, reduce investments or not add any further monies to Magellan products.

Bottom line: Expect more outflows.