Morningstar signaled a foray into the platform market last week, repackaging a range of the researcher’s services as Wealth Management Solutions (WMS).
WMS melds the Morningstar model portfolio and investment data aggregation subsidiaries along with its portfolio management and ‘investor experience’ tools into a multi-purpose platform aimed at the adviser market.
The Nasdaq-listed research house also plans to bundle in its newly acquired Praemium investment platform service.
Morningstar bought the UK and international (ex Australia) operations of Praemium for £35 million last December in a deal awaiting regulatory approval. Floated on the ASX in 2006, Praemium was one of the pioneering boutique Australian investment platforms.
Praemium chief, Anthony Warnsteker, said last December that the sale of the global business to Morningstar would free up the firm to “focus its financial and leadership resources on the enormous opportunity in the Australian platform market”.
Daniel Needham, named as WMS head, said the firm had “big ambitions” to build a “comprehensive wealth management platform” with the new Morningstar business unit.
Needham said while Morningstar would launch WMS into the US market first, it aimed to take the “end-to-end” adviser platform to other countries over time.
“This is a global strategy,” he said. “We want to bring all of the pieces together with the right technology – we’re not quite there yet but we’re building it out now.”
According to Needham, financial advisers in all jurisdictions face similar challenges to deliver flexible, efficient an cost-effective services to clients in a fast-changing digital landscape.
“We’re betting on those trends staying in place over the next five to 10 years at least,” he said.
As well as Needham – who served as chief investment officer of the Morningstar Investment Management arm from 2015 until late last year – the WMS executive team includes a panel of existing and new employees.
The WMS product suite is also set to expand later this year with the addition of a “direct indexing capability” to the Morningstar model portfolio service.
Direct indexing is a growing trend offshore enabling retail investors to directly own the underlying equities in benchmark-based portfolios – a practice made viable by the rise of zero-fee brokerage and fractional share services.
Needham said the US direct indexing market currently sits at about US$300 billion but was poised for fast growth of up to 20-times that over the next few years.
“The two fastest-growing trends [in the US] are unified managed accounts [multi-asset, privately managed portfolios] and direct indexing,” he said. “We think direct indexing will continue to expand rapidly.”
Ben Johnson, Morningstar passive strategies director, said in an article last year that direct indexing “tailors an index to meet an investor’s specific circumstances, and optimizes for things like taxes, or ESG exposure, or factor exposure”.
“[Direct indexing] makes a large number of investors effectively active managers,” Johnson said. “And what we know about active management, about being different from the market, is that sometimes it’s going to look right and feel good, and sometimes it’s going to look wrong and feel bad.”