November 8, 2019

Morningstar Advisor Workstation seems to have lagged growth in other license products such as Data and Direct. Why is this? Was there something unusual in the prior year that led to the challenging comparison in Q3’19?

The Advisor Workstation product is closely aligned with the broker dealer market in the U.S. As such, the Department of Labor’s Fiduciary Rule, which required that all advisors place the best-interest of their clients’ ahead of their own, helped us grow incremental revenue in 2017 and 2018 when broker dealers were preparing for the rule’s possible implementation.
In March 2018, the Fifth Circuit Court of Appeals vacated the DOL Fiduciary Rule (with the order finalized about three months later in June). Since then, some of our customers have been reducing their licenses related to best-interest workflows and solutions, such as 401k rollovers and our best-interest scorecard, from Advisor Workstation, which accounts for a large component of the variance. That said, because of the work we did for the DOL Fiduciary Rule, we were able to move quickly to help clients prepare for the new Regulation Best Interest: The Broker-Dealer Standard of Conduct rule (Reg BI). This rule was adopted by the Securities and Exchange Commission in June 2019 and will impact all broker-dealers, their business processes and compliance policies effective June 2020. Reg BI is now beginning to generate new client demand around best interest workflows accompanied by Advisor Workstation’s new goals-based planning capabilities that help advisors deliver personalized, best-interest advice.
More broadly, as a well-established part of Morningstar’s product portfolio, we estimate that Advisor Workstation already enjoys 38% market share in the North American advisor market; as such, our opportunity to grow the license base is constrained. Therefore, we are increasingly focusing on how to add more value to current customers through product enhancements. Just recently, we rolled out Morningstar GoalBridge, our new financial planning software, and we are now working on the next-generation Advisor Workstation 3.0 version which will include other enhancements such as a refreshed user interface, a web-based client portal with personal financial management capabilities, risk model/scoring and stress testing capabilities, real-time market monitoring, custom proposal generation reporting, a new Morningstar Research Portal for retail advisors, and new mobile apps for the iPhone and Android.

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