Financial advisors know they need to do a lot more due diligence when choosing mutual funds for clients than relying on Morningstar mutual fund ratings — if they use the ratings at all.

The star ratings, based on past performance over the previous three, five and 10 years, are a look backward, with limited applicability to the future.  Mutual funds say as much in their prospectuses: “Past performance does not guarantee future results.”

A recent Wall Street Journal investigation of Morningstar ratings shows just how relevant that statement is. The Journal studied the performance of thousands of mutual funds from 2003 on and found that only 6% to 14% of the funds retained those high ratings three, five and 10 years later even though those same highly rated funds attracted the biggest inflows.

Top-rated U.S. equity funds were among the bigger laggards. While 14% of five-star funds overall held that rating three years later, only 10% of U.S. equity funds did. The spread was even larger over 10 years. Fourteen percent of five-star funds retained that rating 10 years later compared with just 6% of U.S. equity funds.

Bond funds performed somewhat better. Sixteen percent of five-star taxable bond funds held five-star ratings five years later, but 8% saw their ratings drop to one star.

Despite these slippages in ratings, the Journal found that five star-rated funds “perform somewhat better than lower-rated funds on average.”

Morningstar responded to the Journal piece with several of its own, including a message from CEO Kunal Kapoor and articles (on its website) from Jeffrey Ptak, head of its  global manager research, and Don Phillips, managing director. All three acknowledged the limitations of the star ratings and their value.

“What the Journal itself found is that while high-rated funds didn’t unerringly outperform over the decade that followed the rating, they were far more likely to succeed (defined as a subsequent 4- or 5-star rating) than low-rated funds,” wrote Ptak in a piece called “Setting the Record Straight on Our Fund Ratings.”

“Five-star funds succeeded about seven times more often than 1-star funds. Conversely, low-rated funds failed (defined as a subsequent 1- or 2-star rating, or that died through merger or liquidation) at a much higher rate than highly rated funds.”

He added that since Morningstar awards 5-star ratings to just 10% of funds, having 14% of those funds retain that rating three and 10 years later suggests that investors in these funds have increased their odds of owning a better performing fund by 40%.

“We recognize and have often acknowledged the limitations of a measure like the star rating that’s based on past performance, but we also believe it can usefully tilt the odds in investors’ favor, when combined with other research tools,” wrote Kapoor in his Message from the CEO.

That’s how financial advisors primarily use Morningstar fund ratings, if they use them at all.

“I’ve always taken the Morningstar ratings with a grain of salt,” says George Gagliardi, founder of Coromandel Wealth Management in Lexington, Mass. “I may glance at the star rating, but if it is three stars or above, I am more interested in the other information contained in the Morningstar analsyst report.” Gagliardi finds the Morningstar’s top analyst ratings — gold, silver and bronze — more useful because human judgement is involved.

“The problem is not with Morningstar publishing this information — the problem is with how people use the data,” said portfolio manager Kirsty Peev at Halpern Financial, which has offices in Virginia and Maryland. “The onus is on advisors and investors to know that past performance is NOT a predictor of future performance. Low costs are a much better indication.”

The primary beneficiaries of Morningstar ratings may be the mutual funds that are their subject.

“Star ratings are most useful for a firm’s advertisements to tout their funds’ performance, but not for evaluating the overall quality of a fund,” said Gagliardi.

But that use can backfire.

Jason Lina, lead advisor at the Research Planning Group in Atlanta, Georgia, says he doesn’t want to talk to any mutual fund rep who’s promoting his or her firm based on those ratings.

“What I receive an email from a fund company that says ‘We think you should look at this fund because it has a five-star rating,’ that is a telltale sign that I should delete the email and not look back.”

Martijn Cremers, a professor of finance at Notre Dame University, consultant to Touchstone Investments and creator of the website ActiveShare.info, suggests that whether or not advisors use Morningstar star or analysts ratings when researching mutual funds, they also distinguish between funds that do a lot of stock picking and funds that don’t, a measure known as active share. Beyond that, he recommends that advisors analyze the stock pickers to see how concentrated and diversified their portfolios are.