Advisers and financial planners are struggling to communicate the value they are bringing to their clients, according to Morningstar’s new global chief executive, Kunal Kapoor.
He identified the necessity of measuring the value of financial advice as one of the key ‘big trends’, along with the regulatory environment and growing significance of multi-asset solutions.
“One of the challenges I think that a lot of financial advisers face today is communicating the value they are bringing to clients,” Kapoor said.
He also referred to the concept of ‘gamma’, based on one of Morningstar’s earlier reports on the value added by financial advisers to help their clients make more intelligent financial planning decisions.
“We have this concept called ‘gamma’ and to us ‘gamma’ is the value of financial advice.
“The gamma-factors aim to capture how the financial advisers are adding value to the client experience and we are going to do a lot of work there to help bridge the gap.”
He also pointed out that advisers were often having difficulties convincing their clients to make adequate financial decisions as many clients lacked the financial discipline and this was an area that should be better addressed.
“Advisers convincing their clients to stay in or invest more or be cautious about asset allocation when the market has gone up too much, we do not talk about it as a value today when it actually is.”
Speaking about the growing importance of multi-asset solutions, he said it was not about ‘simple stocks and bonds’ anymore. Rather, there were currently more sophisticated instruments being used, such as alternative investments, private equity and venture capital, which was coming to market and trying to find their way into the mainstream.
With Morningstar’s recent acquisition of a Seattle-based investment-research company PitchBook, which, according to Kapoor, had a very strong database on private equity and venture capital, the company was trying to address what was currently happening in the space of multi-asset solutions, he said.
Morningstar would also continue to invest in technology, in particular in the retirement space. At the moment, it operates the Morningstar Retirement Manager in the US and in Australia it signed a deal with Infocus last year, under which Morningstar would provide its Wealth Forecasting Engine to power Infocus’ robo-advice platform.
“We are actually in the process of introducing the Wealth Forecasting Engine to the Australian market so we’ve kind of attacked the retirement market through that solution.
“In the adviser space we’ve provided the advisers with a number of capabilities and what we are trying to do is to connect them more fully because the advisers are increasingly focused not only on investment selection but also on financial planning so we’re trying to help them make this transition from pure investment planning to aggregate financial planning.”
