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Kunal Kapoor, Morningstar CEO

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Morningstar CEO: Investors Not Seeing Value in Advice

By Dinah Wisenberg Brin

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What You Need to Know

  • Investors did indicate a key area where advisors shine, Morningstar CEO Kunal Kapoor said.
  • Morningstar analysts consider the market undervalued.
  • AI should be a game changer for advisors, Kapoor suggested.

Investors, especially those who haven’t worked with an advisor, have trouble seeing the value in financial advice, Morningstar’s CEO said this week, citing a new study by the research firm.

Morningstar, which polled more than 2,000 people nationally for its “Voice of the Investor” study, found participants rated advisors “as providing similar value to investment or trading platforms and only slightly above financial media,” CEO Kunal Kapoor said in a keynote presentation Tuesday at the firm’s annual investment conference in Chicago.

That response was surprising, Kapoor said, explaining that the insights don’t mean investors see no value at all in financial advisors.

“So, I did a little bit more digging into the data, and what we found is that where we see the value of advice shining through is in boosting clients’ understanding of risk management,” he said, according to a speech transcript.

He explained that “42% of investors in our study work with advisors, and 90% of those investors said that they find advisors to be extremely valuable because advisors are personalizing the risk experience for them in a very tangible manner.”

The study is not yet available for distribution, according to Morningstar.

Among other topics, Kapoor also touched on artificial intelligence, saying applying AI to the industry should put advisors “in a position to provide a much better investing experience and do that at scale.” He introduced conference goers to the firm’s new AI character, Morningstar Moe, which is connected to the company’s research and data.

“He is loaded up only with the financial information from Morningstar that we all know we can trust,” the CEO said, asking Moe several questions.

Calling AI technology like Moe a game changer, Kapoor asked the chatbot what a financial advisor should tell a prospective client about finding the right strategy among hundreds of thousands of investment options.

The answer: “A financial advisor should inform a prospective client that finding the right investment strategy involves considering several factors, including their financial position, investment objectives and risk profile.”

The advisor should also explain how they use Morningstar ratings to evaluate investment options and how they tailor their recommendations to the client-specific needs, the bot said. “Finally, the advisor should discuss the importance of ongoing monitoring and adjusting of the portfolio to ensure it aligns with the client’s evolving goals and risk tolerance.”

Kapoor suggested Moe eventually could use Morningstar software and individual investor information, including risk tolerance, to determine which strategy makes sense for a client.

As for the stock market, Kapoor said the firm considered the U.S. market in aggregate to be about 11% undervalued based on the values for all stocks covered.

“Clearly, equity markets have come off their lows, but our analysts still think that if investors are starting to experience the market, this is maybe not a bad time. Over half the stocks that they cover are rated 4 or 5 stars today,” he said.

“So, whether you’re looking at the banking crisis and saying, ‘I wonder if there’s a bank stock I should be looking at?’ We have Truist Financial. Or maybe you’re walking down the street and saying, ‘I wonder if Krispy Kremes are still a good deal.’ Well, they’re 5 stars. And for those who are coming to you and saying, ‘It’s still tech all the way,’ names like PayPal are rated pretty highly by our analysts these days. So, plenty of opportunity. It’s a good time from that perspective to be thinking about it.”

Pictured: Morningstar CEO Kunal Kapoor. (Image: Matthew Gilson Photography)

Dinah Wisenberg Brin

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