Ep. 238: Breakaway Blueprint with Morningstar Office

Come on in and sit back and relax. You’re listening to Episode 238 of the WealthTech Today podcast. I’m your host, Craig Iskowitz, founder of Ezra Group Consulting. This podcast features interviews, news and analysis on the trends and best practices, all about wealth management technology. This episode is part of our series on breakaway advisors, technology for breakaway advisors, to be precise, where we talk to technology vendors, software providers who have interesting and robust solutions that can be leveraged by breakaway advisors.
This particular episode is Morningstar, and we’ve got a team of people on this episode, so it’s a team panel discussion. I’m going to just do a quick overview of one of the people on the on this that I interviewed and that was Bjorn Vitas, who was head of product for the Morningstar and US wealth platform. Bjorn has been at Morningstar two and a half years before that, which is where I had met Bjorn was when he was VP of the Black Diamond platform working for SS&C Advent, and he was there for 14 years. One thing I found interesting about Bjorn when I was looking at his LinkedIn profile is when he got out of school before he went to Advent he was a professional golfer for four years and played on various North American professional tours. So that is cool. We did not talk about golf in this episode at all. So some of you may be disappointed. I apologize. Maybe we’ll do a golf episode one day, but we spoke about Morningstar Office and some of their integrated data research and analytics. We spoke about Morningstar as risk ecosystem and the connectivity it has to Office and we talked about some of the product roadmap items that you can expect to see in the next 6 to 12 months.
But before we get started, let’s talk about tech stacks. At Ezra Group, we’ve seen tech stacks of hundreds of RIAs and let me tell you, most of them are loaded down with tech debt. So you shouldn’t feel too bad about yours. But let’s face it tech debt is like a giant anchor, holding back your business growth.
If you want to free your firm for exponential growth, you should run, not walk to our website EzraGroup.com and fill out the Contact Us form. Our experienced team can evaluate your current tech ecosystem, deliver targeted recommendations, optimize your existing systems and operations or run an RFP and help you implement new software to take your firm to the next level. You can take advantage of our free consultation offer by going to EzraGroup.com.

Topics Mentioned

  • Morningstar Office
  • Integration Benefits
  • TRX – Portfolio Rebalancing
  • ByAllAccounts
  • Risk Ecosystem
  • All-in-One Platform
  • Product Roadmap

Episode Transcript

Craig: Here we are. It’s our Breakaway Advisor podcast series. I’m excited to have a whole team of people here. We’ve got a panel all from Morningstar. Let me introduce them to you. First, we have Bjorn Widerstedt, Head of Product at the Morningstar US Wealth platform. Hey, Bjorn.

Bjorn: Hi, Craig. Thanks for having me.

Craig: I’m glad you could make it. Also, Patrick Ashby, Head of Sales, Morningstar Office. Hey, Patrick.

Patrick: Hi, Craig. It’s great to be here.

Craig: And last but not least, Blain Hefty, Senior Product Manager, Morningstar Wealth.

Blain: Hi, Craig. Thanks for having me as well.

Craig: All right, guys, this is going to be fun! We’re going to roundtable this. We’re all talking about Morningstar Wealth and Morningstar Technology and how they can help breakaway advisors. Before we start, I’m going to throw it to Patrick. Can you please give everyone a 30-second elevator pitch on Morningstar Wealth?

Patrick: Absolutely. Thank you. Morningstar’s mission is to empower investor success. That drives everything that we do, including the technology that we build for advisors and RIAs in particular. With Morningstar Office, we enable advisors to make the best decisions for their clients to run their practices as efficiently as possible.

Patrick: Where Office is differentiated is that we are the only portfolio accounting system that fully integrates Morningstar’s data, research, and analytics. That helps the advisors provide the insights, data, and thought leadership that their clients trust all in the same system that supports performance reporting, trading, rebalancing, billing, web portals, account aggregation, and more. Did I get that in under 30 seconds?

Morningstar Office

Craig: You just got it in. I was going to cut you off. I appreciate that. You mentioned that Morningstar Office is the only portfolio management and portfolio accounting system that integrates Morningstar data. Why don’t we start with that? Let’s talk a bit about Morningstar Office.

Craig: I’m sure many advisors are familiar with Morningstar products. Advisors that come from wirehouses or broker-dealers probably have Advisor Workstation on their desk and they’ve been using that. What’s the transition like for these advisors going from their wirehouse broker-dealer environment with Advisor Workstation and moving to Morningstar Office?

Patrick: That’s a great question. When an advisor is beginning that journey or even starting to think about that journey, there are so many things that they have to think through in terms of their tech stack. I think what Office does is provide a unique opportunity to simplify and create some consistency. As you mentioned, there are many broker-dealers and wirehouses that leverage Morningstar’s data, research, analytics, and software.

Patrick: The product that comes to mind is Advisor Workstation, which I believe has around 200,000 global users. If you’re familiar with what Advisor Workstation can do, it allows you to search and screen for different investments, build models, review those analytics, and generate proposals. A lot of advisors are familiar with reports that are frankly ubiquitous, like the snapshot, the stock intersection, the X-Ray, and current versus proposed. When we launched Morningstar Office, the idea was: Let’s take all those things that are so valuable for advisors, but let’s incorporate that with transactional portfolio accounting. And that’s what Morningstar Office offers.

Patrick: It’s an opportunity to have some consistency, and it’s an opportunity as well to purchase a system that is not only going to help you manage your practice but is also there to help you grow it as well. And I think that’s so important for breakaway advisors.

Integration Benefits

Craig: Patrick, what’s the big deal about this? If I’m using another platform, I could just task switch back and forth between XYZ platform and Morningstar’s tools. Is it integrated? What’s the benefit of having Morningstar Office with this data?

Patrick: That’s a great question. And you’re right. There are RIAs out there that purchase Advisor Workstation or another Morningstar product like Morningstar Direct and use another portfolio accounting system. We come across that all the time. What we hear from them quite often is that they’re trying to collate reports from two different systems when they’re generating their reports. And with Office, I wouldn’t even want to use the word integration with this data; it’s just built into the system.

Patrick: If you’re reviewing clients and accounts and you can see the positions within a particular account or household, you can click right on those investments, and it pulls up all of Morningstar’s research and data on that investment. You can run the snapshot reports and the stock intersection reports with full holdings-based look-throughs on those accounts right from within Office.

Patrick: I think what’s most exciting about that is that when you create your custom report packages—which can be completely customized by the advisor in terms of colors, logos, and the different kinds of components that you want to include—not only are you pulling in time-weighted or IR growth charts, you can also pull in all those different components that you’re used to on those analytical reports and integrate them right in the same place. It creates the ability to not have to toggle between two different systems and then try to manage that. Everything is completely packaged together in a consistent way that can be delivered however the reports are being delivered. Many of our advisors are using the client web portal that we offer. I think that’s where the value comes in.

Craig: I remember reading something about the API’s integration between Morningstar Office and data, where you were putting in the codes from Morningstar data into the Office API. If I’m an RIA and building some of my own tools, I could easily link those together. Am I getting that right?

Bjorn: I’m happy to jump in there. The internal API structure that we have, Craig, is truly integrated all in the back end, like Patrick said, directly pulling it into the system. There’s no delay. We merge that data with portfolio accounting data so that it can be easily packaged together. I don’t know if that’s your question exactly.

Craig: Exactly. That seems to be unique to me. I could always do APIs into other systems. We do that at Ezra Group all the time, where we help build integrations for our clients. But what I understood was that by using the Morningstar products, I’d have access to a deeper level of data through the APIs than if I were coming in from the outside.

Bjorn: That’s right. The reporting and analysis on an actual client portfolio versus a hypothetical model of portfolio are the same. That’s what Patrick is describing.

Craig: Excellent. In other parts of Morningstar Office—it’s not just the Morningstar data and the transactional portfolio accounting—you also have a very strong rebalancer. Here at Ezra Group, we do a lot of competitive analysis on application categories in our industry and portfolio rebalancing. It’s probably one of the biggest categories that we evaluate and review.

TRX – Portfolio Rebalancing  

Craig: You guys acquired a company called TRX a number of years ago, which was a very strong rebalancer, especially in tax lot accounting and tax management. How has that been integrated? And what are some of the benefits of having that rebalancer inside Morningstar Office?

Blain: Thank you, Craig. I think one of the benefits is that it sits on top of Office and leverages some of the same data that Patrick was mentioning, whether we give the advisors the freedom to build their own models through the research that Morningstar provides, as well as access to a model marketplace where you can go and look at what some of our partners—asset managers on the marketplace—are doing from a strategy standpoint and implement that into your business as well.

Blain: As you know, rebalancing has become table stakes. But not just straight model rebalancing, but with the tax-efficient lens, including location optimization, adding that value. That’s something where we feel we have a very strong offering.

Craig: Yes. It’s especially around tax-efficient rebalancing. It’s something that a lot of advisors coming from a wirehouse or broker-dealer maybe don’t realize where they’re not directly involved with the rebalancing; it happens away from them. But when they have more access to it, they can see the benefits of things like automated tax loss harvesting and tax transitions when you’re moving. Especially if they’re trying to move their accounts over from their former firm, those need to be done in a tax-efficient way.

Craig: What about direct trading? A lot of the advisors we’re seeing now, even the breakaways, are going multi-custodial. Are Morningstar Office and TRX multi-custodial? And what are the benefits of having that in this package?

Blain: Yes, we are multi-custodial. We have integrations directly with the custodians. When you do your rebalance and get your trades, you submit them straight to the custodian through a direct integration. We also use fixed technology, where you can also send them all to custodians. If I’m with two or three, I click a button, and those trades get sent to those custodians in a matter of seconds, and you get the response back that those trades were executed. That’s very important to save a lot of time. Otherwise, you’re traditionally downloading a file, logging into your custodian, and uploading it manually.

Craig: We don’t want to do that. We’ve all seen the nightmare of exporting trade files and importing trade files into each custodian. It’s no fun at all.

Blain: You have the added benefit of logging and tracking from a compliance standpoint too if you’re required to have that file all the time saved on a local machine versus just saved on our secure servers as we send those and log that information to the custodian. There’s that added layer as well, which we’re happy about.

Craig: Before we move off of Morningstar Office, I wanted to touch on client communication. I know that’s something new in Morningstar Office. And it’s something we’re seeing in a lot of other applications where vendors are realizing it’s not just the portfolio management part. You can be managing portfolios wonderfully, but if your clients don’t understand what you’re doing, it’s not as valuable. What type of client communication functionality and features does Morningstar Office have?

Patrick: Morningstar Office includes a mobile-responsive web portal. Many of our advisors generate performance reports on a quarterly basis. The web portal is two-way. It’s level 6 encryption. It allows clients to upload documents to their advisor as well. The notifications that come with the posting of documents to the web portal do get sent to clients. Those notifications can be customized by the advisor as well.


Patrick: It’s probably also a good point to mention that part of this whole ecosystem includes access to ByAllAccounts, which is a Morningstar company. That means that when we’re talking about client communication, it’s not only with the held assets that the advisor is managing, but any assets that their clients have allowed them to aggregate from held-away providers as well—401ks, other investment accounts, etc. Most of the communication is driven through the client web portal within the program itself. Does that answer your question, Craig?

Craig: Yes, it does. But you brought up another question. I like talking about ByAllAccounts. Is there anything new coming into ByAllAccounts? I know that it’s one of the longest-standing vendors providing held-away asset information. You guys also acquired them a while back. Is anything new coming down the pike for ByAllAccounts, integrations with Morningstar Office, or other things that we should know about?

Patrick: I guess one thing I’ll mention really quick before turning it over to Bjorn and Blain is that when advisors think of ByAllAccounts, sometimes what they think of is screen scraping. What ByAllAccounts has done with the 16,000+ connections that ByAllAccounts provides to financial institutions is create more direct connections with those financial institutions. In any case where we can grab that data through a direct feed in a partnership with that financial institution, we’re doing that.

Patrick: I believe the last data I looked at indicated that upwards of 80% of all assets that are aggregated through ByAllAccounts are done so through a direct feed rather than through screen scraping. Bjorn, did you have anything you wanted to add to that?

Bjorn: I would just say that we’re working extremely closely with that group. I think there’s a steady stream of roadmap updates with ByAllAccounts. A lot of that has to do with data, speed, cleanliness, and accuracy. We’re also looking at different types of data that they can provide and different types of insights that they might see from a behavioral standpoint through a lot of this feed that they’re aggregating. We are looking into how to leverage that in a better way in various parts of Office, but also in our newer Wealth Platform, which we can touch on a little bit later. It’s really nice to have ByAllAccounts be part of the family and work with them because it creates a tighter integration.

Craig: And one thing that people listening may not realize is that ByAllAccounts is not just for RIAs. It’s also used extensively in the broker-dealer and enterprise space, especially because of its strengths around data integration, data optimization, and data cleaning. We’ve done a lot of research on data aggregation as well. One of the things we find is that some vendors don’t clean their data as well as they should, so you’re getting held away at data. But it’s a mess. It’s not accurate. We found that ByAllAccounts has a better clean score—how clean the data is when it comes in—and reliability than maybe other vendors. Are you finding that is also the case when you’re working with breakaway advisors and other RIAs?

Patrick: Yes. I think from a breakaway perspective, you don’t have the time to worry that the data that’s in the system that you purchased is accurate. Not only is ByAllAccounts a Morningstar company and completely and tightly integrated with Morningstar Office, but the team that comes along with Morningstar Office—our back office services team, which is entirely US-based—understands exactly how to work with this data. They do it day in and day out. They do not force reconcile or force balance anything. They’re researching out of balances, correcting them, and getting that data uploaded so that when you login in the morning, it’s ready to go.

Patrick: The other thing I’ll mention from a breakaway perspective is that ByAllAccounts is usually thought of as aggregation for existing clients. If you’re a breakaway trying to grow your practice and you’re meeting with a prospect, you can work with them through the account view portal. If that prospective client is willing to provide their credentials—which the advisor never takes ownership of—and enter their credentials within account view, then you have that account linked into Morningstar Office. You could start running reports on it and then you can create that current versus proposed report and work on earning their business.

Risk Ecosystem

Craig: It’s all good. I want to move on from Morningstar Office to make sure you have enough time to cover some other aspects. Other technologies that we think help breakaway advisors would include the Risk Ecosystem within Office. Patrick, can you talk a little bit about: What is the Risk Ecosystem and how breakaway advisors could take advantage of it?

Patrick: Yes. And just to be clear, this is fully integrated and it’s within Morningstar Office. Any client, model, prospect, household, or even individual investments that are managed investments within Office can be viewed through the lens of various factor premia, like valuation, liquidity, momentum, and volatility, just to name a few. Risk scores are created within Morningstar Office. That methodology has been peer reviewed and we’re very proud of it. I think that’s also helpful for breakaways who are sitting down with clients going through this process of: “Let’s understand what your risk tolerance is. Let’s look at these investments and what the portfolio tells us about how volatile this portfolio can be.”

Craig: Taking it a step further, I think this is really interesting: There’s a module within Office called Scenario Analysis. This allows advisors to stress test different portfolios. You could do this on a household, an individual account, or a model. You could say: “How would this portfolio have performed during the ’07-’08 oil price rise, the subprime mortgage crisis, or the coronavirus?” We have about 35 different scenarios that are available. They include predefined macro-financial and market-driven scenarios. We continue to add more. But I think that’s unique and helpful for breakaway advisors to help answer questions from their clients about: Where is my risk exposure? And how could you expect this portfolio to perform if this were to occur? That is all included right within the new cloud-based UI of Morningstar Office.

Craig: And you guys acquired a very popular risk tolerance application called FinaMetrica. Is that integrated into the Risk Ecosystem? And how would that appear to an advisor who is using this application?

Patrick: We have the FinaMetrica risk tolerance questionnaire within Office. There’s another module within Office that is newer called Goal Bridge. Goal Bridge is a goals-based planning tool. It’s not intended to be a replacement for a comprehensive financial planning tool.

Patrick: Craig, I think you understand this: Those comprehensive financial planning tools are fantastic, but in many cases, advisors tell us that it can take three to six hours to create a plan for a single household or a client. Goal Bridge is intended to be like: “Let’s spend 20 minutes just understanding what you have today, what your goals are, how you’re aligned, and what that looks like.” I think that serves two purposes: Number one, with existing clients, doing a quarterly or semi-annual check-in, just making sure that the alignment is there. But for breakaway advisors, I think the other thing is that we’re seeing a lot of our clients using this in a prospective client conversation scenario. That’s all available within Morningstar Office and was launched fairly recently. Bjorn, did you have anything you wanted to add to that?

Bjorn: No. I think you covered it well, Patrick.

Craig: And just for reference, we have Goal Bridge in the Kitces Ezra Group AdvisorTech Map. Goal Bridge is under ‘Planning Light’. You mentioned that advisors think it takes too long to do a financial plan. What other capabilities exist in Goal Bridge? And how is it better to use this application being integrated and connected to the other parts of Morningstar versus just plugging in something else?

Patrick: Yes. And just to be clear about that, we support integrations that are pretty solid integrations with the leading financial planning providers that are out there. With Goal Bridge, the idea wasn’t that we’re trying to displace. This is an opportunity that we saw to add value within the Morningstar Office offering and to complement a more comprehensive planning structure.

Patrick: Frankly, if you’re a breakaway advisor, you’ve got to be careful about how you manage your time. In some cases, you might be thinking about different tiers of clients. Maybe spending three to six hours on a plan isn’t suitable for every client or prospect, and that’s where we see Goal Bridge playing a role. It fits into the ecosystem as a complement rather than a displacement for those other systems, which we do integrate with. But I’m sorry, can you repeat your question, Craig?

All-in-One Platform

Craig: I think you have the workflow in an advisor when he goes from a new client coming in. You mentioned that they can do prospecting. They can use ByAllAccounts for that to do a current versus proposed. Then they might run through a quick Goal Bridge scenario and then onboard them into Morningstar Office. How is that a better process than if I just did each thing with this with a separate application?

Patrick: Got it. There are a variety of different ways that you could go about that within Office. Every single client of ours has a dedicated customer success manager that knows Office extremely well, gets to know your business, and can propose to you a workflow that will make the most sense for your business. I think that’s incredibly important.

Patrick: As part of the onboarding, our team will learn: How is it that you’d like to do this? Tell us about your goals and objectives. Let’s help you create your report package.

Patrick: From a prospecting perspective, they could propose a number of different workflows. One thing that we’ve seen is: Step one, let’s get the client’s current data in the system. That can be entered manually. The nice thing is that if you enter in those positions because of the integration with Morningstar data, the market values of those positions within those accounts will change as the market changes. Or if the client’s willing, as I mentioned earlier, they can enter in their credentials and bring those accounts in.

Patrick: Once those accounts are in, the advisor can create a login through the client web portal so the client can log in and see their information. Then they can go through the risk tolerance questionnaire with that client and understand what their goals are. For example, college savings, purchasing a second home, and retirement.

Patrick: Once all that’s been accomplished, then we have proposal output that could be generated from Goal Bridge, which can include holdings-based analytics that are found on many of our other reports that I mentioned earlier, like the snapshot or the stock intersection. And now you’re having a very detailed conversation about what your goals are and how your investments are aligned to those goals, which we think is very powerful. It’s being done in a holistic way, powered by ByAllAccounts, which we think is incredibly important. And then you can start to put together the current versus the proposed. And now you can toggle that switch in Morningstar Office that everybody loves to toggle, where you take that prospect and convert them to a client and then, obviously, assign management fees.

Craig: Obviously. There you go. We’re running out of time. I want to save some at the end for Bjorn to bring some of the product roadmap. But, Patrick, can you do a one-minute quick review of Direct Compass?—which is something new you’re launching for all Morningstar Office users.

Patrick: Yes. I believe it launched a week ago, so very recently. It’s something that we added. It doesn’t have any additional cost, but it’s a new research portal for Office users. It allows users to harness independent thought leadership with extensive equity and manager research and keep tabs on the market with convenient components. You could think of them as watch lists and screeners. You can identify and select different investments and then monitor them within the system. That would cover 50,000 global companies, 150,000 mutual fund and ETF share classes, and much more.

Patrick: I think what’s really interesting about this is that Mo is included with this. Craig, I believe you’ve met Mo. Mo is Morningstar’s AI chatbot, which is powered by the Morningstar Intelligence Engine. This draws from our extensive investment data and research library, including every article that you could ever find on Morningstar.com, for example. Mo is designed to surface and summarize our independent insights in a conversational format. We’re really excited to have him within the Morningstar Office family.

Craig: I like Mo because I can take him out to eat. It doesn’t cost me anything. He’s a very light eater.

Patrick: He’s a cheap date.

Product Roadmap

Craig: He’s a very cheap date. Handing off to Bjorn to bring us home, talk about the product roadmap. What can companies using Morningstar’s product suite come to expect in the next 12 months?

Bjorn: Sure. It’s a great segue from Direct Compass as well. As some of you know, about two years ago, we did a pretty significant reorganization at Morningstar, forming the Wealth Group here. A lot of this from a vision perspective is exactly what we’ve been talking about, which is taking the best of what Morningstar has and is building in terms of our Wealth products, combining efforts and the effect of being able to evolve even faster into a unified platform.

Bjorn: I think we’ve already talked about some of the capabilities today, but there are overlapping capabilities between what the TAMP does—file accounts, Office, Direct, and other areas of Morningstar. But we’re working on bringing that user experience together in a more meaningful way for different types of firms: Investment research, model construction, rebalancing, trading, billing, and reporting, and also things like digital account opening—making those things better.

Bjorn: CRM integration and other types of integration—we talked about the fullness of financial planning. But beyond that onboarding phase, also connecting it to ongoing monitoring as life events happen and the market is happening, having a deeper connection between looking backward and looking forward. Advisors and their clients don’t have to jump across different types of content to draw those insights and make the right decisions for the future.

Bjorn: As it relates to managed accounts versus a lot of these firms that are doing their own investment research and model construction—whether they do partially, none, or are fully running outsourced managed accounts—it will work as one unified system running on the same data and the same user experience. But you have full choice, so you can deploy different parts of those capabilities based on how that firm is structured in the type of roles and the type of process that that firm employs. We’re looking to provide choice, but [also] really meaningful connections that matter if firms are looking for that.

Bjorn: As it specifically relates to Office and some of the capabilities that we’re looking to elevate beyond where they are today, there are a couple of things there, I think. We’re doing a big investment into—I’m going to get a little techie and nerdy here, Craig—the processing and the speed of really big data here. Some of these large firms that need ‘book a business,’ insights on a model, a group of clients, or the entire firm at the click of a button—firm insights or business intelligence type of reporting—can also be applied to different types of exposure reporting or compliance extracts. There are big investments into that data model and how quickly we can serve up those insights to clients. It’s really exciting to see that. We’ve been working on that backend for close to a year in different types of ways and we’re seeing some interesting results there. I can’t wait to get some beta usage out of that system in the near term.

Bjorn: And there are plenty of other things. There’s a big investment going into mobile from a client portal perspective, primarily, but a little bit on the advisor side as well.

Bjorn: Probably the last thing I’ll mention is the way that our system will be able to be configurable for different types of firms. You’ve got lots of different roles in larger firms—maybe 20, 30, 40 different users. The granularity of those permissions and access points and how people want to customize certain workflows is something that we’re putting a lot of effort into. As you know better than anybody, Craig, it’s hard to find two firms that work exactly the same way. That’s another big part of our investment picture. It’s super exciting. It’s a big project for us, but we are very excited about the progress.

Craig: And with that, I’m going to have to wrap this up. I could have kept going another half hour, at least. Bjorn, that was a fantastic overview of the product roadmap. It’s exciting for not only existing Morningstar clients but [also] breakaway advisors who are listening, looking for a tech platform, and considering Morningstar Office. There’s a lot coming down the pike. Not only is what we have now very capable of supporting your business but there’s a lot more coming in the future. Bjorn Widerstedt, Patrick Ashby, and Blaine Hefty, thanks for being here. It was a great interview!

Patrick: Thank you for having us.

Bjorn: Thanks, Craig.

Blain: Thank you.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com