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Advisors Have Benefitted From Innovation More Than Clients

Morningstar panelists agreed that improvements for customers aren’t evident yet.

The financial services industry continues to be transformed by technology. But unlike areas such as mobile payments and community banking, the end clients in the wealth management space haven’t yet seen as much benefit as have the advisors that serve them, argued a group of panelists at the recent Morningstar investment conference in Chicago.

This despite the assertion from Morningstar CEO Kunal Kapoor that the times have never been better to be an investor. “This might be unpopular in this room but I don’t actually believe that this is the best time,” panelist Josh Brown, CEO of Ritholtz Wealth Management, said. “I actually think that there may be way too much choice.”

While the market is as accessible as ever to investors, Brown argued the “mind-boggling” volume of investment choices can paralyze them. Investors still benefit from working with an advisor, who can help them navigate those choices and, most importantly, sometimes help them understand the best thing for a client to do is nothing. For that reason, the wealth manager said “There’s never been a better time to [be] a financial advisor.”

Don Phillips, a managing director at Morningstar who previously served as CEO, said technology has been improving investment tools and providing new ones. Those tools, though, are designed with advisors in mind and might be over the heads of clients unfamiliar with investments and financial planning. He said the innovations in wealth management weren't dripping down to those who needed it the most. Most innovations are coming from what he described as the original "old boys" club of finance, combined with the newer version in technology, and their efforts weren't being felt by those investors lower on the net worth scale. 

“The tool kit is good, but you have to know how to use it,” Phillips said.

Phillips pointed to conversations in financial services about "who owns the client," as evidence that financial services has yet to fully embrace a business model that serves investors, and not just the firms looking to make money off of them. "Anytime someone asks 'who owns the client,' you know that person is not a fiduciary," he said.

The third panel member was Paolo Sironi, a fintech thought leader at IBM’s Watson Financial Services. He said there are many investors who need more wealth management services than a robo advisor can offer, but they aren’t eligible for the white-glove services they usually provide, where other tools and resources have improved. The investors in that sweet spot are ones that can benefit from further innovation.

Sironi suggested at the conference that the use of artificial intelligence (like that of IBM’s Watson) might be capable of aiding investors in financial decision-making, replacing some needs to consult a human advisor.

If anything, he said, it might be better at answering questions a human advisor might not have thought to ask. For example, IBM might never be able to create a trust, but it can help investors make decisions about spending habits, savings rates or when to begin withdrawing from a defined contribution plan.

Sironi said future changes that simplify investing and financial services are the ones that will be truly disruptive and sustainable. They won't replace an advisor, but they will change the job definition. More vulnerable to change will be the asset managers and providers that see advisors as a distribution center.

“People do business with people they like,” Brown said. “If the customer likes you, I think the person closest to the customer is the winner of the whole equation. And those furthest will have to give up the most for the cost of getting to that customer through the advisor.”

TAGS: Technology
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