Morningstar CEO urges greater engagement in shifting wealth landscape

Investors are suffering from decision paralysis with the volume of choice available to them, according to Morningstar, and firms would be wise to improve their engagement efforts.

Speaking to Money Management, Morningstar chief executive Kunal Kapoor said the proliferation of investment options has indeed provided choice but has had the knock-on effect of leaving investors overwhelmed. 

Discussing how the investment market has changed since he took on the leadership role in 2017, he said the ratings house is having to work harder than ever to “demystify” all the options available, both for advisers and for customers.

”It used to be investors could buy stocks, bonds and cash, it wasn’t complicated in any way. But now when you look at an investor’s portfolio, it is all so mixed. There are alternatives, private equity, bond funds that don’t own bonds, managed portfolios … there’s also a move towards ESG and a move to personalisation. 

“All of this helps the investor but certainly increases their choice, and we have to work even harder and up our game to demystify that.

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“Is there decision paralysis? There’s definitely some truth in that as everyone is focused on choice and less on engagement. The opportunity is in engagement and there is a big move in Australia with the superannuation funds there. 

“There’s an understanding finally that you can have the best investments, but if people aren’t engaged with their money, then they won’t feel good about the results they are getting or know if they are meeting their goals.”

A key area where this is already being demonstrated is the move by superannuation funds to engage with their members fuelled, Kapoor said, by the transition in the wealth landscape since the Hayne royal commission. 

Rather than solely running a super funds, changes proposed in the government’s formal response to the Quality of Advice Review could see them providing financial advice to their members. 

“Everyone is dealing with a shifting landscape and they are looking at Morningstar to lead in terms of helping them with engagement through data and personalisation.

“Insto investors used to be less focused on engagement, but they are coming round to it because of the shifting wealth landscape in Australia since the Hayne royal commission. An outcome of that was the realisation by the superannuation funds that even though they weren’t in the wealth business, they need to be close proximity to it and in the ecosystem of financial advisers. 

“So you are seeing a manifestation of that where banks are coming out [of advice] and super funds are on their way in, that’s the direction of travel.”