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Fintech Innovation, Fads, & the Future of Investing

3 industry leaders share their views on technology trends

Laura Lallos


For decades, technology trends have come and gone in the financial industry, but this time, the innovation feels different. Passive strategies, robo-advice, and regulatory scrutiny are bringing technological changes to how advisors construct portfolios and manage client assets. Some trends will turn out to be fads, but others could permanently change the industry.

What fintech innovation means to 3 industry leaders

For the 2017 Morningstar Investment Conference, Tricia Rothschild, Morningstar’s chief product officer, gathered three industry leaders to discuss the evolution of the financial-services industry and fintech innovations driving change today.

Joining Rothschild were Paolo Sironi of IBM Watson Financial Services and author of several books on the subject, most recently FinTech Innovation: From Robo-Advisors to Goal Based Investing and Gamification; Josh Brown, writer of the popular blog The Reformed Broker and CEO of Ritholtz Wealth Management, an independent practice that was an early adopter of automation and technology tools for advisors; and Morningstar’s Don Phillips, industry thought leader, recipient of many awards for his contributions to the investing world, and a columnist and editorial board member of the magazine.

Their conversation took place April 26 and has been edited for length and clarity.

Tricia Rothschild: How would you define innovation in our industry and how can we push the envelope forward?

Paolo Sironi: I would start with why we need innovation in financial services. Financial institutions can no longer make money by selling products; the margins are getting squeezed. They need to package these products into an advisory mechanism. Financial advice is about trust. To move from providing transactions to providing real services to clients, the financial-services community needs to gain their trust. That’s where innovation comes in. It can provide the knowledge that helps clients make the right decisions.

Rothschild: Don, you come at this from a different perspective.

Don Phillips: I’m a huge fan of innovation that helps advisors educate clients and help them better understand their investments. What Josh is doing with his practice is fantastic. But with investment products, it’s very easy to over-engineer things. It’s often the whole foods, the basic building blocks as opposed to genetically engineered TV dinners, that serve people best. What investors really want is simplicity. And the investment management industry is designed to deliver complexity. That’s a fundamental mismatch.

Jack Bogle spoke on this stage a couple of years ago. He expressed his fondness for Shredded Wheat, “the company that put the ‘no’ in innovation.” It’s a great irony that Jack Bogle had two amazing innovations, the mutually held fund company and the index fund. He had this great idea: Buy and hold the entire market forever. We’ve turned this into an amazingly complex thing. There’s about 5,000 stocks in the U.S, about 15,000 funds, and one index provider alone in the U.S. offers over 1 million indexes.

The best innovations are the ones that simplify things and make them easier for investors. Investors crave simplicity, especially that marginal investor, the newer people that we’re forcing to be investors, like people in 401(k) plans.

The beneficiaries of fintech innovation

Rothschild: Josh, what innovations have you found valuable?

Josh Brown: The more I think about innovation, and the history of investment management and financial advice, the more I realize that a lot of what we call innovation is really repackaging.

If Morningstar were holding this conference in 1931, we’d be talking about the open-end mutual fund as the new disruptive force in the industry. Prior to the crash of 1929, closed-end funds were really the only game in town if you weren’t doing individual stocks for yourself. They were leveraged, so they didn’t survive through 1930. The open-end mutual fund, by law, was not employing leverage but really, there was very little difference. It was just different packaging, with a lot of the same managers.

Robo-advice is another example. That’s not to denigrate robo-advice. I think it’s going to play a huge role in our careers going forward, to enable us to scale up. But robo-advice is just a different user interface overlaid on top of a life-cycle fund.

The other point I want to make is that the primary beneficiaries of innovation since the information technology revolution began have been advisors. We have benefited more than our clients have. It’s not necessarily a negative. You could have the greatest idea in the world, but if you don’t get uptake by professionals, you’re going nowhere.

This blog post is adapted from an article that originally appeared in the June/July 2017 issue of Morningstar magazine. Read the full article.

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