Morningstar CEO Kunal Kapoor tells advisers to embrace technology

He says technology is changing the industry, but it is a long way from taking over and replacing human advisers

Sep 20, 2017 @ 2:09 pm

By Jeff Benjamin

Imagine financial technology that can create personal portfolio indexes for individual investors or a computer program that can assign forward-looking performance ratings for mutual funds and ETFs.

That's the way Morningstar CEO Kunal Kapoor thinks when he imagines where technology is heading, and why he believes financial advisers need to run toward technological innovation to avoid being left in the digital dust.

"When it comes to technology, my advice to financial advisers is embrace it and be excited about it," said Mr. Kapoor, who spoke Tuesday in Chicago as part of the InvestmentNews' Innovators in Investing series.

"The possibilities for advisers are pretty great," he added, tamping down fears that the latest wave of technology and innovation represent a major threat to the financial advice industry.

He compared the initial fear of robo-advice platforms to fears from the threat of online brokerage trading in the 1990s.

"The online trading platforms were supposed to put everyone out of business, but they were just absorbed into the mainstream," he said.

Citing examples of successful digital advice platforms at such financial stalwarts as Schwab and Vanguard, Mr. Kapoor said that even in the early stages of evolution, "the winners are not the normal digital platforms that everyone expected to take over."

"Right now, there are more conversations around digital platforms than anything else," he said. "Thinking about it through the lens of how financial advice is evolving, the immediate reaction was that robo advice was bad news for advisers, because it was going to put them out of business by appealing to millennials."

Mr. Kapoor emphasized the technology in general and digital platforms in particular represent "good news for advisers."

For starters, he said digital advice helps solve the challenge of building scale at an advisory firm, and it also helps advisers reach a broader market of potential clients.

"Yes, there is an opportunity to use robos to move down market, but don't dismiss the fact that your more traditional clients might also want to use a digital platform," he added.

While he said "it's possible that in 20 or 25 years there might be a purely digital platform," the immediate future will continue to depend on a blend of digital platforms and human wealth management.

"I think less about the pure robos, and more about the innovations that advisory firms and asset managers are making," he said. "As advisers, you can use digital tools now to advise on different sleeves of a client's portfolio, because the adviser is evolving from being a planner to being a life coach."

Describing technology as an "enabler, not a threat," Mr. Kapoor talked about digital platforms evolving to the point where advisers would be able to manage client portfolios pegged to personalized indexes.

"The next set of innovations most useful to advisers will be around big data," he said. "Eventually, through big data, advisers will be able to anticipate client needs" related to significant life events or even health and medical events.

"A world where advisers are able to build portfolios to a personal index is not that far off," Mr. Kapoor added. "There's always going to be things that will challenge the financial advice business model, but the thing that will put [advisers] out of business is if they can't show their value."


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