Morningstar CEO: Advisors Can Use Personalization to Reach Young Investors

Investors increasingly want to be rewarded for doing good in the world by investing in sustainable companies, and financial advisors can serve them by framing “sustainability as investability,” Morningstar CEO Kunal Kapoor said during the firm’s investment conference this week.

While flows have favored passive investing, changes are taking place with regard to the next generation of investors, he said, explaining that advisors can serve as navigators to this growing pool by connecting clients’ personal preferences to their portfolios, he said.

“The type of investor that we’re seeing on Morningstar.com has changed meaningfully,” Kapoor said, noting that 25- to 34-year-olds comprise 20% of the site’s users, tying them with those 65 and older for the highest share. In addition, Morningstar has seen meaningful growth in visits from investors 18 to 24 years old, who account for 10% of those drawn to the site, he said.

“This is not the regular-type investor we used to see five or 10 years ago. But it is also the type of investor that is going to power your practice in 10 years, in 15 years. And so we have to start laying the seeds together for what that means to help those types of investors,” Kapoor said. The “active personalization” concept can help advisors guide these clients, he said.

“Active personalization is the new active investing, and what it does is it blends traditional approaches with more modern ones to create a new way to help you serve your clients in a personalized, scalable fashion,” Kapoor said, referring to environmental, social and governance focused investing. He encouraged advisors to set politics aside and think about how their clients view risk and reward.

“Investors increasingly want both sides of ESG — risk mitigation and being rewarded for making a difference in the world,” the CEO said. “This is at the core an investing discussion; it’s one you should be able to embrace easily.”

Climatetech, or carbon-negative technologies, are part of a megatrend today driving significant investments from venture capitalists, he noted. “So why should this be an area that you ignore for your clients, especially when many of them are beginning to tell you that they care about the positive impacts associated with making investments in spaces like this?” 

Advisors can meet client needs “in a tangible, measurable manner” and show them the potential tradeoffs between their commitment to sustainability and investment risks, Kapoor said. He cited various Morningstar tools financial professionals can use to build a portfolio that matches investors’ risk profiles with their sustainability aspirations.

Research shows that financial advisors who are supplied with ESG resources are five times more likely to talk to clients, including new ones, about sustainable investing, Kapoor said.

“The time is right for personalization and personalized conversations with your clients about their portfolios and how you’re positioning them,” he said.