Morningstar Magazine - June/July 2017 - 91

very simple: We make money working, minus
what we spend, and that is what we save.
However, even though the equation seems simple,
the solution to the equation is not simple because
we have a limited balance sheet. It's very
complex to strike the right balance.
So, what do we do to solve this equation? First,
it is important in conversation with a client
to leverage up the quality of the engines that
provide long-term portfolio simulations. That
is something that we do at IBM, as the basis of our
goal-based investing principles. You need
to help people to make decisions and to play with
instability across time. Most of the problems
of traditional finance in the classical theory is that
we assume that the longer the horizon, the
higher the risk.

become the customer's data. Someone
questioning who owns the customer is basically
saying, "I don't understand the concept of
fiduciary." Because no one owns the customer.
You work for the customer. They're saying, "We're
not going to give out the data on this customer.
We want to hold it to ourselves, so we can
market more things to them. We own it, it's
an asset that we have." The reality is, it belongs to
the investor, and it needs to be opened up.
It's a real problem when you get into areas like the
401(k) space. Investors move from one company

to another, and their whole financial future-their
retirement security-is put into question. How
good is this new plan? Should they roll their assets
over? Should they try to set up other things?
There isn't nearly enough free flow of information
for investors to be making those decisions.
Rothschild: Josh, you're The Reformed Broker. How do
you think about the industry?

Brown: As far as the entrenched interests: We've
already had Little Bighorn, and they lost. I don't
see it as a threat at all. Every multimillionaire
investor in the United States now understands that

The second element is the actual clients. You need
to understand the customers. We have client
insights that use machine learning to help advisors
augment their understanding of the client. It's
about creating the holistic cognitive advisor.
The third element is the decision-making. There is
a cognitive bias when we make decisions.
Typically, we think in terms of a trade-off: What
if I don't buy insurance for the house, and
then there is a fire? But what if the problem is too
complex? With Watson, we created a way of
suggesting scenarios and situations that you might
not think of, of helping you see what you
cannot really measure, to imagine uncertainty
because uncertainty is what ultimately always kills
your portfolio.
Rothschild: Are there entrenched interests that are

impeding progress or innovation?

Phillips: I've got one to throw out. The '40 Act
envisioned the fund investor as the owner at the
top of the pyramid. The asset-management
industry has inverted that pyramid. They say, "We
are manufacturers that create products that
we sell through different distribution channels."
If you're an RIA, you may not have known this,
but you're a distribution channel. And the investor
is at the bottom. That doesn't strike me as right.

The last frontier probably is education, true
financial literacy for the whole society.

Then, they have debates about who owns the
customer. In the digital age, the customer has

Josh Brown

global.morningstar.com/Morningstarmagazine

91
http://global.morningstar.com/Morningstarmagazine
Table of Contents for the Digital Edition of Morningstar Magazine - June/July 2017
