Data Privacy Drives Big Wedge in Advisor-Client Relationship

“Transparency of data privacy practices will be the new and defining criteria that drives the industry’s successes,” says Morningstar CEO Kunal Kapoor.

Speaking at the annual Morningstar Investment conference in Chicago on Wednesday, Kapoor explained that Morningstar always asks its clients for permission to access their data and advisors should as well. “There is more opportunity in an open hand than a closed fist.”

The SEC recently highlighted the issue when its Office of Compliance Inspections and Examination issued an alert last month reminding advisors and broker-dealers to provide clients initial and annual notices of their privacy policies act as well as notices about clients’ ability to opt out of disclosure of their nonpublic personal information to third parties — all required under Regulation S-P. The agency issued the alert after its examiners discovered noncompliance among firms.

(Related: SEC Fires Off Warning on Privacy Regulation)

Data privacy is not the only issue that advisors and clients might view differently. Morningstar Research found that investors give advisors lower marks for understanding their needs than advisors do, while advisors feel investors don’t value their (the advisor’s)  behavioral support.

Kapoor sees a need to “bridge the gap between what we know investors value and what advisors think investors value.” To that end he said Morningstar is investing in software that includes for “behavioral nudges.”

The company is also building an HSA database that it expects to roll out later this year, adding more data to existing models, expanding capabilities on fixed income and alternative assets and broadening its credit rating analyses.

Morningstar will also be developing a single global digital platform for separate accounts as a result of its new partnership with Mercer, announced in late October, and expanding coverage of the private equity market, stemming from its late 2016 purchase of PitchBook, which tracks private capital deals.

(Related: Morningstar and Mercer Pair Up to Offer Data Platform)

Morningstar recently introduced its Model Marketplace allowing advisors to choose among multiple model strategies and portfolios for no additional fee.

Underlying all these and other offerings from Morningstar are three principles, according to Kapoor: independent research, transparency and a long-term approach to investing.