Morningstar Magazine - June/July 2017 - 92

Investors

for as long as all of us are alive and beyond.
The first is fear and greed are a constant. There will
always be different products, services, software,
fund types, investment fads, and crazes. Human
nature is not going to change. If you're somebody
who can help other people navigate that
fear and greed, you will have gainful employment.
The second thing is, and this is really important:
All things being equal, in the end, people
do business with people they like. It's as simple
as that. That's assuming you have at least
comparable services, technology, a decent suit on.
If all of those things are relatively equal, if the
customer likes you, then you are their advisor. The
person who's the closest to the customer is the
winner. The people who are the furthest from the
customer are probably going to have to give the
most on things like fees and compromise the most
to get the advisor to consider using their product.

You need to give clients a chance to learn by
doing. That's the gamification principle.
Paolo Sironi

they can do whatever they want. They can seek
out help from a Certified Financial Planner
or from independent wealth-management firms.
If they're big on borrowing, they can seek
out help from a wirehouse. I don't think there are
limitations on how people can invest anymore.
The last frontier probably is education, true
financial literacy for the whole society. It's got to
start in high school. Two generations ago,
we had pensions, and you didn't have to know
about investing. You had to know how to open
your mailbox. Today, we put the onus on 120

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Morningstar June/July 2017

million households to plan their own retirement.
They're not equipped to do it. I don't know if that's
an issue of entrenched interests, so much as a
point of negligence in society. It's good that we all
learn trigonometry I guess, but most of us don't
understand tax-deferred assets, and the rule of 72,
and why we're trying to compound. That's the
biggest hurdle.
Rothschild: Will there be continued disruption and
what will it look like for the industry in terms of existing
business models?

Brown: There are two things that'll never change

Sironi: There is a difference between disruption
that provides cheaper and simpler services
and products, and a sustaining innovation, which
is a product or service for a higher margin that
makes the customer happier. Twenty-five years ago,
my father brought me a CD player for Christmas.
That CD player is an example of sustaining
innovation because I was willing to pay a price to
get more value. Every year, I bought a new piece of
technology, like an equalizer, a subwoofer, loud
speakers, until I built this very large Japanese hi-fi.

That is why goal-based investing principles are
so important. If you cannot sell the products,
you need to personalize them to people's
needs. You need to create new storytelling. You
need to transform the investment relationship.
But financial literacy is not easy to improve.
A lot of customers might think they've paid an
advisor to make them more money, but in reality,
they paid to get a certain risk exposure and
advice to manage it. That needs to be explained,
but not by going through a term sheet.
You need to give clients a chance to learn by
doing. That's the gamification principle. Find an
engagement model that helps you transfer
a message that reinforces a certain behavior. To
teach about uncertainties and risk, you can
use technology to find a way to explain to clients
by letting them play games, in a sense.
Table of Contents for the Digital Edition of Morningstar Magazine - June/July 2017
