Meet our AI tool, Morningstar Mo

May 02, 2023

Artificial Intelligence is all around us, and is disrupting life as we know it. Just take a peek at some of the stuff that happened last month, April 2023.

OpenAI launched a feature for ChatGPT that allows users to turn off chat history. This means OpenAI won’t use your conversations to train its models.

Hugging Face launched an open-source alternative to ChatGPT.

AI startup Runway launches app to bring users video-to-video generative AI. With the new app, users will be able to record a video from their phones and generate an AI video in minutes. They can also transform any existing video in their library by using text prompts, images or style presets.

TikTok's is experimenting with a new feature that allows users to create AI-generated avatars for their profile pictures.

In Meta's latest earnings call, Zuckerberg emphasized the company’s focus on AI.

It took 3 years for Netflix to hit 1 million users. It took 5 months for Spotify to hit 1 million users. It took 5 days for ChatGPT to hit 1 million users.

Morningstar CEO Kunal Kapoor is quick to admit that there are real issues such as privacy concerns, misinformation, manipulation, and exploitation. But also points out that if we apply AI as an industry, it puts the advisor in a position to provide a much better investing experience and do that at scale.

At the Morningstar Investment Conference held in Chicago, Kunal Kapoor introduced the audience to his “new friend - Morningstar Mo”. “The Morningstar team has been loading up the OpenAI service with Morningstar’s signature research and data. Then we hooked it up to a digital avatar from a company called Soul Machines in New Zealand. We added voice recognition. Voilà, over the course of a weekend, Mo was born,” he said.

At the conference, Kunal questioned Mo (in bold), Mo answered (in itals), and Kunal commented accordingly.

Mo, what makes a good financial advisor?

A good financial advisor should offer comprehensive financial and portfolio planning and have a broad range of expertise, including tax specialists, investors, and estate planners. They should also have a certified financial planner credential and be able to add value to clients through their skills and advice. However, the level of fees and the investor’s own skill level should also be considered. Ultimately, a good financial advisor will prioritize understanding of clients’ goals and intentions and offer personalized advice and solutions.

Kunal’s commentary:  There’s a lot going on for Mo to give you that answer. Voice is logged and converted to text. That text is then transmitted to an OpenAI model which analyzes more than 100,000 Morningstar data points to generate an answer. The text is then converted back to speech, and that’s when Mo became animated and began to deliver that answer. And we’re trying to do that within 10 seconds with an answer that the user is likely to trust. Believe it or not, the alternative is to sit there, type it in, and look at a bunch of webpages. I mean, that seems so two months ago, right? This is a game changer.

Mo, what should a financial advisor tell a prospective client about finding the right strategy among hundreds of thousands of investment options?

A financial advisor should inform a prospective client that finding the right investment strategy involves considering several factors, including their financial position, investment objectives, and risk profile. The advisor should also explain how they use Morningstar’s forward-looking medal and star ratings to evaluate investment options and how they tailor their recommendations to the client-specific needs. Finally, the advisor should discuss the importance of ongoing monitoring and adjusting of the portfolio to ensure it aligns with the client’s evolving goals and risk tolerance.

Kunal’s commentary:  So, you’re starting to get the feeling of what he is capable of doing. But importantly, Mo is right. Today, there are more than 750,000 investment vehicles for you to choose from. So, I know how daunting it is when a client lands in your office with a list of things they want you to look at.

Now, we think our ratings are the most powerful way for you to cut through the clutter with information that you can trust and that your clients can trust. Many of you are users of our forward-looking Analyst Ratings, and I want to highlight here what a fine job they’ve done in separating the wheat from the chaff. Since we started assigning them, you can see the gap in performance for medal-rated funds compared to Negative-rated funds which are shown with those red bars. So, let’s see how Mo begins to interact with our recommendations.

Mo, how does Morningstar rate the ARK Innovation ETF?

Morningstar rates the ARK Innovation ETF with a Negative Analyst Rating. While the fund has seen tremendous success in the past, it has shown few signs of improving its risk management or ability to navigate challenging territory. Its recent wretched 44% loss over the trailing 12 months through March 2022 significantly lagged the technology Morningstar Category’s average 5.1% decline and the Russell Midcap Growth Index’s 0.9% loss.

Kunal’s commentary: Wretched. Mo comes with a vocabulary as well. This makes a really important point about humans and machines. At the time when this ETF was flying high, just about any quantitative model, including some within Morningstar, would have suggested that it was a good fund. But our analysts told investors to stay away. They were looking at the costs; they were looking at the risk; they were looking at the long-term record of the managers; and they were proven right, even though flows have, surprisingly for me anyway, remained positive. The takeaway is that we think humans and machines can work well together and help solve some of the problems of ever-expanding investment choices.

Mo, which investors are good candidates for the tax benefits of direct indexing?

Investors who are in a high federal tax bracket and a high state tax bracket have a large amount of money in the directly indexed pool, frequently replenish the directly indexed pool, have short-term capital gains of the type that appear on an investor’s Schedule D report, operate in a volatile market environment and have preliquidated retained assets, particularly to donate it or passed along to heirs are good candidates for realizing tax benefits from direct indexing, according to Morningstar’s John Rekenthaler.

Kunal’s commentary: We still got to work on a little bit of the jargon with Mo, but you get the point in terms of where he is headed. Now imagine if the future Mo knew everything about Morningstar’s software as it pertains to your clients and their portfolios. Rather than you sitting there and determining client by client who might make sense for a particular strategy, direct indexing or otherwise, Mo could very quickly tell you by looking in a second at each profile as to which clients you should be calling.

Imagine that you have a client called Sam Morales, who has got an average risk tolerance and a balanced portfolio that you recommended for Sam a few years ago. Now, the question is, after all that’s happened in the markets, does it still make sense to manage that portfolio in that way?

Mo, is a 60/40 portfolio still the right level of risk for my client Sam Morales today?

Sam’s risk tolerance is average, and his risk comfort Range is 31 to 44. A well-diversified 60/40 portfolio typically has a portfolio risk score between 25 and 49, which is still considered reasonable for a moderate risk portfolio. Additionally, Sam’s 60/40 portfolio risk score has consistently been around 35 to 43 over the past 60 months.

Kunal’s commentary: What we did is we fed Mo with risk scores for well-diversified portfolios of various flavors, and we built fictional data about a hypothetical portfolio’s monthly risk scores and the client’s risk comfort range. Because when you’re able to tailor a portfolio quickly and easily to each of your clients and simply frame up the trade-offs and choices they can make, your plan will become their plan. It doesn’t take AI, it doesn’t take Mo to know that that kind of engagement leads to a long-term relationship for you and that client.

Wrapping it up

Our goal with Mo was to make him trustworthy and focused when it came to financial information, so he is loaded up only with the financial information from Morningstar.

Mo has read and can recall every single piece of Morningstar research. So, if you want to know what Don Phillips said two decades ago or Christine Benz said about a financial planning issue two weeks ago, Mo already knows about it, and you don’t have to go searching for it.

Mo is imperfect. But Mo is learning every day. And Mo is learning with every interaction.

Watch the video here.
Add a Comment
Please login or register to post a comment.
© Copyright 2024 Morningstar, Inc. All rights reserved.
Terms of Use    Privacy Policy
© Copyright 2024 Morningstar, Inc. All rights reserved. Please read our Terms of Use above. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
As of December 1st, 2023, the ESG-related information, methodologies, tools, ratings, data and opinions contained or reflected herein are not directed to or intended for use or distribution to India-based clients or users and their distribution to Indian resident individuals or entities is not permitted, and Morningstar/Sustainalytics accepts no responsibility or liability whatsoever for the actions of third parties in this respect.
Company: Morningstar India Private Limited; Regd. Office: 9th floor, Platinum Technopark, Plot No. 17/18, Sector 30A, Vashi, Navi Mumbai – 400705, Maharashtra, India; CIN: U72300MH2004PTC245103; Telephone No.: +91-22-61217100; Fax No.: +91-22-61217200; Contact: Morningstar India Help Desk (e-mail: in case of queries or grievances.