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Integrating Technology, Managing Risk, and Simplifying the Complex with Tricia Rothschild

Risk occurs everywhere in the world of finance, it’s inevitable. As the global business and economic market continue to evolve, so do the risks. With businesses moving forward, how can technology integration in the wealth management industry help mitigate risks?

In today’s episode, Jack talks with Tricia Rothschild, Vice-Chair at the CFA Institute Board of Governors, Board member at Riskalyze, and Advisory Board Member at The TIFIN Group and the Financial Fitness Group.

Over the course of her career, Tricia was an executive at Morningstar in charge of the global software, data, index, and investment research businesses, serving individual investors, financial advisors, and asset managers. In her last role, she was the Chief Product Officer and Co-Head of Global Markets. In her 26 years with Morningstar, Tricia has built a strong leadership team and an innovative business with an enduring impact on investor success.

Jack speaks with Tricia about the risks associated with retail investing, how technology enables asset managers to better understand their clients, and what the future holds for wealth advisory services.

What Tricia has to say

“There is a need for people to have the precision that each individual family situation requires and deserves. I think the industry is moving toward an increased level of personalization.”

– Tricia Rothschild, Vice-Chair, CFA Institute Board of Governors

Read the full transcript

Jack Sharry: Hello all and thanks for joining us on WealthTech on Deck. Our podcast is a series of conversations with industry leaders who create strategies take tech capabilities, and innovative products and platforms around the confluence of digital and human advice all to improve investor advisor and firm financial outcomes. So today, we will talk with Tricia Rothschild. Tricia is a friend and has a storied career she spent more than 26 years at Morningstar were in her last role she was Chief Product Officer and Co-Head of Global Markets. Over the course of her career, Tricia was an executive at Morningstar in charge of the global software, data index, Investment Research businesses, serving individual investors, financial advisors, and asset managers. More recently, she was president of APEX financial solutions. Interest is currently the Vice-Chair of the CFA Institute of Board of Governors. She also serves on the advisory board at the TIFIN Group, and on the board of the financial fitness group. So Tricia, thanks for joining us. Welcome. So happy to have you on WealthTech on Deck.

Tricia Rothschild: Thanks, Jack. So happy to be here.

Jack Sharry: Terrific. So, Tricia, you’ve done a bunch over the course of your career for those who may not be familiar with your work. Tell our audience about some of the things you’ve built that you are particularly proud and passionate about.

Tricia Rothschild: Okay, cool. Thank you. So much of my career at Morningstar was related to investment research. And I was trained as an analyst got my CFA built an equity research business there. So very focused on bringing the right and kind of high integrity investment value to users at that could be an advisor could be an individual, as my career went along there. And I would say more recently, what I’m actually most proud of is the integration of that investment research with financial planning and other aspects of an individual’s financial health that goes beyond just say the investment research specifically. And so before I left the firm, we created and launched a product offering called Goal Bridge, which was specifically designed to link the financial plan with the investment plan. And honestly, it took me quite a while probably longer than it should have to understand that in real life, the financial plan and the investment plan aren’t always already linked. When you go to see a financial advisor, it’s often different pieces of software with different back ends. And that idea of creating the goal Bridge, which is what we called it in the Morningstar context was it seemed both obvious and innovative.

Jack Sharry: At the same time, having spent a little bit time on the particular topic of which you speak. It’s really hard. You know, it sounds like of course, you would have your plan and your investment strategy coordinated, but it’s rare that I’ve ever seen it actually done. So talk a little bit about how you how you pulled it off with not so much about the dirty details. And as we were building anything, as you well know, it’s always takes longer, and it’s harder than expected. But what did you encounter? What do you guys overcome? How do you make it work?

Tricia Rothschild: Yeah, I think one of the more complex parts is understanding how you map the goals to the actual accounts, I know that this is something jack that you do a lot of work on. And both things exist and are understandable in their separate natures, right, like, as a person, as an investor, as a family, you have multiple accounts, and they are created for all good reason. And then similarly, you have lots of goals. And those are also all very valid. But the meshing of the goals of the accounts, and how you get the right investment outcome from that integration is just hard, especially hard to do at scale. So in an automated way, which is clearly you know, the tech part of FinTech is to do all of the good work that a human advisor could do, but to deliver it more efficiently with less risk, higher quality and less cost and to do it at scale. And that’s where I think the complexity really comes in.

Jack Sharry: You raised an interesting point, obviously, at LifeYield we spent a whole lot of time on this topic. I have to say, I still am surprised. Clearly the industry is moving toward the embrace of what you just described. In other words, how do you get your plan implemented? And then, frankly, because we work a lot of firms, it’s hard data is all over the place, and assumptions are all over the place, and so on. But talk about it from your perspective. I mean, I could go on about it, but better do or I need to hear from you. Why is it so hard? What makes it so difficult? Since it seems everyone’s working on what you just described? And everyone is frankly struggling with it? At least the folks we talked to we talked to a lot of people?

Tricia Rothschild: Well, there are many reasons it can be hard. Let me count the ways. How can it be hard? I mean, one is, as you said, the data the sources of the data are often you know it’s not consistent in the first place. Secondly, a lot of the firms in the industry We have grown through integration or acquisition at some point or another acquisition, perhaps without integration. Right? Right.

Jack Sharry: Oh, you mean you have to integrate to?

Tricia Rothschild: That was a little Freudian slip when I said integration first, because actually, that’s the acquisition that happens. And then you have to do the integration. And then you have to do the maintenance.

Jack Sharry: And actually, I would add something to that, if I could. Well, we’re finding when we’re making this distinction, in fact, we had Aaron Klein on here not too long ago, when we were talking about this. It’s a coordinated integration. Because when you take planning and you take investments, and you take multiple account types of account registrations, and you take different product types, they annuity or what have you, resume, UMA, fund, ETF, whatever, that’s where all that complexity occurs, right? Because it has to be not only we ultimately try to implement, but you have to coordinate all of those different factors, because there’s all different parameters around those different products and so on. But maybe you should talk about that rather than me. wax poetic.

Tricia Rothschild: Oh, yeah, no, no, no, that’s true. And then there’s, of course, the aspect of scale. And so if you have, you know, say, a good, you know, wealth forecasting engine, or some sort of tool that is going through multiple scenarios, like doing that at scale, and understanding where you’re at in a market cycle. So is it dynamic? Like, are you integrating the current market? valuations? I mean, that’s obviously the Holy Grail, when you’re running that sort of put for somebody, but taking all that complexity for like I said, an individual person or family and running it at scale, it just it starts to get slow. And so then the experience isn’t good. That’s another problem. Yeah. So those are just a few of the possible problems.

Jack Sharry: Yes, yes. Well, I’ll lay off we I think we’ve established as hard as we say, in Boston is wicked hard. Anyway, talk a little bit, because you’re involved with a different group, which really does some interesting work. You’re involved with some other folks certainly in the CFA front, and some other groups, and got a front row seat. What’s going on? What do you see him? What are you excited about? What are you interested in what’s happening out there that will address some of things we just talked about? And probably a whole lot more?

Tricia Rothschild: Sure. So I consider myself to be a pretty growth oriented person. I’m not change averse. I mean, you would think I spent my whole career at one firm, it would indicate that I was changed at first, but

Jack Sharry: There was some change there while you were there, right?

Tricia Rothschild: Yeah, I was just gonna say there’s some irony there. But no, actually, the firm was growing so quickly, which was, it was just a lovely place to be over, you know, two decades plus, because there was so much change and opportunity. But my point is, I consider myself to be fairly growth oriented. But I’m actually, at the moment, really thinking a lot about risk. And I can tell you, it’s somewhat of it is personal. So I took some risk and leaving Morningstar after 26 years. And on a personal note, I’m doing a lot of reflecting on how I like to spend my time and kind of getting to know myself again. But from a financial services perspective, I’m thinking a lot about risk, as well. I’m the chair of the risk committee at the CFA Institute on the board there. And I also think in the context of current market valuations, and investor expectations, and the integration of new asset types, into people’s portfolios, and a whole new generation of investors coming up wealth transfer, and all those things everybody knows so much about, I just think that we as an industry need to be really thoughtful about risk. So that’s an interest to me.

Jack Sharry: Yeah. So talk a little bit more about that, what do we do about it, I’ll give you my quick wrap, and then love to have your thoughts on if you’re going to improve outcome. That’s what this is all about. Of course, we’ve had this seemingly never-ending bull mark. And I know there have been some backs and forth and so on. But you know, over the course of your career, mine has been pretty much headed north, you know, the vast majority of the time. So risk is sort of an issue that sort of set aside. But if you’re going to improve outcome, and can’t rely on the market forever, and now we got inflation, rearing its ugly head, we got taxes potentially going up. And taxes are the biggest impact, as we know, on a portfolio in terms of outcome. So if you’re going to improve outcome, the three levers are cost risk and tax, if you’re going to go beyond the markets, if you’re not going to rely on the markets, per se. And you gotta throw inflation in there because it would inflation kicks in. And certainly if it becomes long term, it’s going to affect the retirement income and so many baby boomers now retiring, it’s going to impact their income. So there’s lots of different forces at work that are kind of coming together. And interestingly, there’s lots of good work going on around the industry. And I know you paid close attention to that. So talk specifically in terms of your concern around risk, and that this whole thing about how it comes together, because that seems to be where the retail investing world is headed is how do we bring it all together to improve outcome sustainably over time?

Tricia Rothschild: Yeah. I think it’s somewhat definitional. So what is risk and for whom is it a risk and how material is the risk? So there’s investment risk, which is probably really kind of what you were just talking about. But there’s also behavioral risk or, you know, risk of my own, you know, behavior. There’s the risk of not investing or inaction. And there’s a correlation risk, the risk of not meeting goals, I think a lot of it comes down to education that maybe sounds rather simple. But I’m not sure if the risk is really always discussed in a super meaningful way. And it also is the kind of thing that people think they’re supposed to avoid. And that’s clearly not possible. So. So how is it best managed? And do you know what risks you’re taking? And is that clear? And have the right expectations been set? Let’s say, especially if you’re working with an advisor, like, how are those things even discussed?

Jack Sharry: So I’m all for Investor Education, advisor, education is not far behind. But I’m not sure that’s gonna solve it, it seems, personally and I’m a bit biased, for sure. I think technology is good, that’s gonna get solved, just because I just see stuff being developer there. Example, Orion is developing behavioral finance in the midst of their tools, so that it’s giving you caution in real time as you’re about to make a dumb mistake. And then calculating the consequence of taking an action that will cost you know, in terms of tax dollars and risk dollars, potentially, and so on, that they’re actually embedding it. So I’m a little bit more prone toward the FinTech, solving this or at least helping and solving it. Because it seems gargantuan to try to educate everybody that in a way that they, I’m not sure they’ll ever be will ever succeed there. But I’d love to your thoughts on that.

Tricia Rothschild: Yeah, no, that’s totally fair. And you’re right, they’re not mutually exclusive paths, I think there is enough Advancement at this point in terms of how you know, AI can be applied to understand past behavior, and then project what you know, is likely in the next step, and how that could provide a better kind of like, foreshadowing or pathway that would help people maybe alleviate or, again, mitigate some of those risks. I think the part that’s definitional, though, is understanding in the first place. So what risks are appropriate and what are not? And just understanding like that the word even more clearly.

Jack Sharry: Again, your vice chair of the CFA Institute, Board of Governors, and with a specific focus on risk, and you’re involved with a different group, which I’m quite sure, I don’t know all that they do, but I quit your risk is on the on the menu of things they look at. And certainly financial fitness group the same. So what are you doing about it? What are they doing about it? What should we be doing about it?

Tricia Rothschild: Sure. So well, financial fitness group is kind of the easiest in one sense, because it’s all about financial education. And I mean, one of the more interesting things that happens there is the Ho Chunk nation, the Indian tribe out of Wisconsin, ensures that all of the kids have to go through this financial fitness program, before they turn of age to get their government grant. And so kind of having that sort of enforcement, if you will, to just learn some basic literacy at a young age, I think is pretty cool. And it’s not taught in very many schools. I think, you know, there’s also some gamification that comes from those tools, which is like your, you know, your financial fitness score. So you can do your before and after, I think there’s a lot we can learn in our industry from other apps and others, like nudging like a fitness app, or whatever that kind of helps you pal out have a peloton like, you know, it’s interesting and fun to kind of see how there’s a sense of community that develops from that. And there’s, I think there’s a lot we can learn as an industry and the CFA Institute board, there’s an emphasis on a different type of risk, which we haven’t discussed yet, which is super important to our industry, which is cyber risk, and, you know, data privacy. So there’s just so much to learn and to be vigilant about in that space. And I think that in the financial advisor community in particular, there has been some, some good work that’s being done and certainly a lot of awareness, I was just at the market Council summit, and there was some, you know, really important conversations from the technology panel around how you know, large RIAS who maybe don’t have the backing of a large bank infrastructure but still need to be very aware of the importance of privacy for their clients data and what they can do about that. So that’s another aspect of risk it would be I’d be remiss if I didn’t venture, the importance of that.

Jack Sharry: I’m intrigued. I’m not sure to what degree you can share. I’m intrigued with the TIFIN Group, which I’ve been hearing about and that the Tiburon conference and had a chance to hear I think the chairman who spoke I’m not recalling his name there, doctrinaire Yeah, very impressive. Tell me about that group. I pay attention to a lot of stuff and that one I missed and after hearing Vinay I was like wow, I should be paying closer attention.

Tricia Rothschild: So you should be so I have been paying attention for you, Jack. Good, good. I will share with you and then actually I think what The TIFIN Group has captured as a need in their strategy, which I was attracted to that.

Jack Sharry: If I may, yeah, why don’t you just describe what they do? We’re talking like we’ve you. And I know. And I will know a little, you know, a lot more, of course, but describe the group what they do and then into their strategy as well.

Tricia Rothschild: Yeah, I will. So I guess at the core of the strategy is this focus on hyper personalization, and taking a variety of assets, or what you might even call point solutions, many of which the TIFIN Group has built from scratch. So for example, the one that is easy for everybody to relate to who’s listening to this, because you can go online and do a search is called magnify. It’s a natural language search, investment discovery and research tool. And it’s personalized to the extent that you just put in whatever is on your mind that you’re looking for in terms of a criteria, and let’s say low cost access to clean water, and you’ll get a result. So you don’t have to have any particular investment knowledge. Although obviously, it has, you know, both a self-directed arm and an advisor focused arm that allow advisors to also construct portfolios in a in a pretty intuitive manner. So that’s, that’s an example of what was built. But there’s also been a couple of acquisitions in the portfolio. So totem was an acquisition, that’s now part of the TIFIN suite.

Jack Sharry: So do they do they act as like a VC private equity investor? What’s the role of TIFIN? Is it just as an investor? What do they provide beyond that?

Tricia Rothschild: So I wouldn’t necessarily say they would function as just an investor, because the strategy is to take these assets and bring them to market to add value along the way. So that there’s, you know, a development team, obviously, that’s building something is fresh, and other things are being integrated, all with that goal of improving the investment outcome through hyper personalization, and really balancing the fin and the tech. So how do we think about the financial part of the equation along with the tech and because it’s a very fast development kind of cycle, it’s pretty impressive what they’ve been able to bring to market in a pretty short order of time and thinking about both the asset management side of the equation and the adviser side of the equation, which is another part of the puzzle that I think is very important. I feel like there is a fair amount of work being done on you know how to make the advisors desktop better, for lack of a better word. But what is the connectivity and the role of the asset manager? And isn’t there a way and I would say there isn’t I think the TIFIN Group’s mission would validate this, there is a way to make that matching process between the investment offering and the investor or the advisor simpler and magnifies a great example of that. So it’s, you know, it’s a way to use natural language search to bring that to make that process kind of demystify it a little bit. They’re also doing some things with thematic investment baskets. So Morningstar has some strategies, JP Morgan has some strategies. So as an individual investor, you can ask, you can access stock backs in a basket and then execute that trade. Actually, that’s done through the apex custody and clearing platform. So it offers a low cost way to access a small set of thematic investments that are chosen by a professional investment team. So that’s another way to kind of simplify the access between the investment IP and the end user

Jack Sharry: Speaking of IP wasn’t 55IP, part of the TIFIN Group?

Tricia Rothschild: It was that was acquired by JP Morgan. So that was probably the most well known in our industry. Anyway, the most mature asset and so the strategy then is you know, as you can see, these properties can coexist and linked together there’s a really interesting donor advised fund offering called Louise that is in market and is available for to look at to help advisors with the growing need for better access to help their clients have easier access to their philanthropic giving goals. So there’s a really interesting kind of family of offerings that sit under the TIFIN umbrella. It’s worth spending a little bit of time, I would say.

Jack Sharry: Yeah, I was fascinated listening Vinay and also as a company like LifeYield quite fascinated on the wonderful success 55IP enjoyed that did catch our attention. Talk a little bit if you would, we’re gonna wrap up here in a few minutes. But I’d love to hear where do you see the world going? What’s on the horizon? What excites you what interests you? What needs to get fixed? I know you’ve talked about risk, but what do we do about it? Where do we take it? What do we do as an industry and certainly as someone who’s been a leader for many decades at this point, where do you see it all go?

Tricia Rothschild: Oh yeah, I think the words that come to mind are personalization, which we just talked about. So even putting aside the how there is a clear opportunity, there’s a need for people to have, like the precision that each individual family situation kind of requires and deserves. And so I think the industry is moving toward increased level of personalization and doing it. Obviously, the goal is to do it at scale. And simplification. There’s, in my opinion, every time you think that there’s going to be some getting close to being simplified, then something comes along that increases the complexity again. So I think that that’s just an ongoing challenge for the industry.

Jack Sharry: By the way, if I may interject, yeah, I don’t think there’s anyone better at simplifying the complex and Morningstar. Basically, that’s the if I were to say your brand, you make the complex, simple. And you were clearly one of the leaders at Morningstar, when that all happened? So you know, of what you speak.

Tricia Rothschild: Yeah, yeah, it helps if you start with the assumption that it should be simple. And it also, it also helps if there are not incentives in place that, you know, give you reason to try to obscure? Yes. So I think those are the two first foundational principles that are required. But I guess the main thing, I would say I was thinking about this a little bit, check it, there’s a little bit of a shift in terms of what and where is the value that the industry delivers? And I find that to be a really interesting question.

Jack Sharry: So tell me more, I’m fascinated by the thought. So tell me what you’ve cooked up.

Tricia Rothschild: Yeah. So is there value in the asset management firms IP? And, you know, it seems almost common these days that people say, well, the investment part of the equation is commoditized. And I hear that I understand why people say that maybe it’s more commoditized than it used to be. But you can’t tell me that there’s no value in an asset managers IP, or that there’s no value in having, you know, high quality professional management, that doesn’t mean that every asset manager is providing that, but there is value there. But I think that’s how much is one question. Is there value in the software experience? What is the value of the software experience? How does one, differentiate and add true innovation? A lot of you know, the workflows tend to, at some point start to kind of look the same? And is there a value in personalized service? Like what is the value of the human touch? Clearly, there’s value there, too. And I think kind of the, you know, the threat of the robo advisor, and I say that, in quotes, showed that it’s really not a threat and that there is need for and the pandemic has showed us this too. There’s need for there’s value in human contact. So yes. So how in the future, does that value get parsed out? I think that is where the interesting kind of conversation comes, I think we can over rotate one way or the other. But ultimately, all three of those aspects have value.

Jack Sharry: One firm that we know well, that comes to mind that I think is an example of what you’re describing as Franklin Templeton. How much of course you follow Jenny Johnson.

Tricia Rothschild: I am a big fan of Jenny Johnson. Yes.

Jack Sharry: Why join you in that? And she spoke at Tiburon. And we’re gonna chat with her a bit. She is boy, she sharp and she gets it. So it’s no longer about just managing money better, which certainly they’ve given up on that by any means. But all the investment in tech really, and how that’s getting integrated is really quite fascinating. I think they’re among all the asset managers. I follow them closely. All due respect to our friends at BlackRock, they talk a good game. I haven’t seen much other than the talk. Jenny’s doing it, and she’s making the investments. I think that will matter. We’ll say it’s a race. And Blackrock is right up with Franklin Templeton. I think there’s a few others that will be coming up from behind that my friend Riley Etheridge is an American funds and doing some interesting work along those lines. So it’s coming. I think it’s happening, but it’s as you well, that’s where we start is hard work. But your thoughts on the above.

Tricia Rothschild: So that is an interesting, it’s almost like a Back to the Future play because the asset managers remember, like they used to have all of the distribution embedded in the Essent manager. And we separated all that in our industry. And now you can see the need, and I get it like I think the asset managers need to have a better understanding of the end user like they became a little distance from their customer. And so this investment in technology allows them to more effectively serve the user and I don’t I think that’s a good thing. But I also I just I think it needs to be done in an open architecture kind of way so that we move ultimately forward and don’t repeat some of the problems that came around the first time when everything was vertically integrated. And it was all about like a product push. I will say I think Franklin Templeton in particular has set up a really important kind of framework for that. There’s a service called Tango that they launched and I was part of that in my work at Apex with Franklin Templeton products, but it was open architecture. So there could be other offerings if desired. And this is called Bamboo. So a robo advice platform that was also then integrated into the apex custody, including platform and the whole suite. The end to end workflow was called tango. And it’s you know, 15 basis points more or less, it takes five minutes, more or less, it has a dynamically adjusted like goal matching engine to put you into the right portfolio. So it’s, you know, it’s a goal based approach. And it was fast, it was simple. It was inexpensive, it is fast, as simple as inexpensive.

Jack Sharry: I mean, what customers want advisors want a simple expense.

Tricia Rothschild: Totally right. So I just thought that was a really kind of a good step forward.

Jack Sharry: That’s great. That’s great. Well, this has been a great conversation as we do at this point in our discussion, I’d love to hear three key takeaways that you’d like to share with our audience.

Tricia Rothschild: Sure, so my favorite product management phrase, and it’s funny because it kind of came up in this conversation a little bit is love the problem more than the product. And it’s a product management phrase from any industry, but it’s particularly relevant in our industry. So that’s, that’s one. Number two is balancing the fin and the tech. So if you’re, you know, if it’s all fin, and no tech, we have to move beyond that. And if it’s all tech, and no fin, which is sometimes a risk, we’re not going to get the right outcome. So I think and that’s something that I think that as an example the TIFIN Group is doing well. Third takeaway is having at this moment, in particular, in the industry having really strong peripheral vision. So what is happening on the sides, you might say, like, embedded finance, so is Walmart going to launch a direct to consumer investing platform? Right? I mean, they hired those folks from Goldman who launched Marcus, I mean, you know, there’s clear signs that there is more interest in consumer and retail brands, thinking about investing, and understanding kind of the rise of the younger generation. I think that that’s part of the peripheral vision that we need to have in our industry that requires different thinking.

Jack Sharry: So my other favorite question behind beside the three key takeaways is, and we asked this each week of our guests tell us something interesting or unique you do outside of work that people may not know about you or would find interesting.

Tricia Rothschild: Okay, well, there’s a little bit of a risk in sharing this with you. And I’ve talked about risk. So the here goes, well, I’m counting on the fact that this podcast is going to end as soon as I say that you’re not going to force me to proceed, but I love to sing. So yeah, I love to sing. I just recently joined a new acapella group in my neighborhood, and we are going to be performing the Star Spangled Banner at a Northwestern basketball game, which is my alma mater. So I’m really excited about that.

Jack Sharry: Good for you. I won’t make you sing. But I’m thrilled to hear that’s one of the that’s, that’s been fun about this question. Probably the top response so far is Brian Ross from FIX Flyer if you know Brian, yeah, he does long distance swimming. He swims the English Channel, he swam between England and Ireland. He is somewhere down in like the in the South Pacific that some island islands swim that it’s a part of a team. They swim live for 24 hours they take, you know, an hour on an hour, two hours off. There’s a team of three anyway, it’s crazy. That takes the cake we’ve not seen that one topped yet. And then last recording we did with Damon Deru from advisor peak now part of Addepar he does what it’s called exactly but you climb between crevices he’s lives on Utah. Oh, but anyway, he does that with a team and they basically climb through crevices. None of the above including singing mullet, you see me doing so I think safe so Tricia, this has been a real pleasure speaking to you as always love to to chat with you and enjoy our conversation very much for our audience. If you’ve enjoyed our podcast, please rate review, subscribe and share what we’re doing here at WealthTech on Deck available wherever you get your podcasts. So Thanks, Tricia.