Morningstar Magazine - June/July 2017 - 90

Investors

relationships, solutions, a digital medium that
helps them to better understand how to optimize
their balance sheet and their decisions.
Phillips: The average person out there thinks as
little as possible about the financial-services
industry. And what they think is probably fairly
negative. It's easy to turn your back on finance,
even though it's mission-critical to your future.
Half of people eligible for retirement plans aren't
participating. I think part of the problem is
that the investment community doesn't really look
that much like the community in general.

Is fintech is going to be the solution to this? You
take the old-boy network of finance and the
young-boy network of technology, and you
put them together and say, "This is going to widen
the community of investors to have greater
gender and racial diversity." But instead, they're
coming together and building tools and products
for the HENRYs-the "high earners, not
rich yet" people. These aren't the people who
are falling through the gaps.
How do we reach out to those people who are
ignored or have turned their back on finance? As
things like 401(k) plans become the retirement
savings plan of a whole generation of Americans,
we've got a responsibility to step up and solve
that. And that's not what I see the industry
focusing on today. Step one is making sure that
these industries look like the community as a
whole. Get more women in the financial-services
industry. Get more racial diversity.
Rothschild: Josh, what problems can you solve
within your practice for individuals who aren't sure how
innovation can help them?

Brown: This might be unpopular, but I'm going
to say it anyway. I don't agree that it's never been
a better time to be an investor. There is way
too much choice. The evidence suggests that the
more choices you give someone, the harder
the decision-making process is for them. It's
America and we have 85 different types of mustard
in the supermarket. I get that, and I'm not arguing
for a closed system and less choice.

Maybe what I'm saying is that there's never been
a better time to be a financial advisor. There

90

Morningstar June/July 2017

are a million different ways to access the market,
which sounds good, but it's mind-boggling for
people. Maybe what we're really here to do is not
just be a client's friend or advisor but to be a
bouncer, to fold our arms across our chest and
sometimes say, "No, you are not going to own an
ETF that trades three times the price of palladium."

other side are very expensive advisory solutions for
the lucky few who can afford them. But there
is a huge population in the middle that needs to be
advised for retirement. Only technology can help
to fill this void. Financial advisors cannot scale
to infinity; they're humans. Technology is there not
as a threat, but to help to solve this problem.

Interest in the financial markets on the part
of regular civilians, it's the same as the interest
in the weather. If there's not a major event,
they don't care. When there's a hurricane coming
in, everyone downloads the Doppler app, and
everyone's suddenly an expert. That's the
way people think about investing. Interest spikes
when there's a crisis. We have a saying in
the blogosphere: "The higher the VIX, the higher
the clicks." The traffic on my blog explodes during
a market correction.

Rothschild: Don, is it a better time to be an advisor but
not necessarily an investor?

Sironi: Instead of saying it has never been a better
time to invest, I would say it has never been
a worse time not to invest. The first baby boomer
in the U.S. was forced to decumulate from his
retirement account starting in January. There will
be more money flooding out of than money
coming into the system. It's the same in Europe,
Australia, and in all the Western world;
there's a huge imbalance in the system. That might
generate the next global financial crisis.

At the same time, as Nobel laureate Robert Merton
wrote about, the industry is polarizing. On one side,
there are very commoditized investment solutions
such as ETFs and passive investing, and sometimes
simplification becomes commoditization. On the

Phillips: I'd point out that as an investor, you don't
get to choose the time. You've got goals to meet,
and there are things that make it difficult today.
It's hard to see that bonds are going to do a lot
of the heavy lifting over the next decade. But I think
that the toolkit has never been better. I would
tie it back to what Josh said, that the advantages
of a stronger toolkit really come to the pros who
know how to use it. You've got access to investment
opportunities that only elite institutional
investors had a decade ago. We've got work to do
on how to deploy that toolkit effectively.

Overcoming Barriers
Rothschild: What role might Watson play in
financial advice?

Sironi: A lot of people talk about "artificial"
intelligence. At IBM, we like to use "cognitive." We
believe in augmented intelligence, technology
that helps individuals and advisors optimize the
way they make financial decisions.

What kind of problem are we trying to solve?
Everyone has one equation in life which is, in itself,



Table of Contents for the Digital Edition of Morningstar Magazine - June/July 2017

Contents
Morningstar Magazine - June/July 2017 - Cover1
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Morningstar Magazine - June/July 2017 - 1
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Morningstar Magazine - June/July 2017 - Contents
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