In Practice May 24, 2018

Data Scientists Play New Role in Financial Services Vertical

Speaking to attendees of the 2018 DataDisrupt conference in New York, Morningstar’s first chief data officer reflected on the recent creation of his role and what it says about the future of financial services.

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Back in October 2016, James Rhodes became Morningstar’s first chief data officer; reflecting on his first 18 months in the role, he says the financial services industry is only just beginning to embrace big data.

Rhodes’ hiring actually coincided with another first for the firm—the appointment of Mitch Shue as chief technology officer. The company also expanded its global headquarters in Chicago via the addition of more than 29,000 square feet of space specifically designed for its technology employees.

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“Like any firm with an eye for the future, we are focused on transforming our data infrastructure,” Rhodes recently told attendees of the 2018 DataDisrupt conference in New York. “We have an advantage in that we have a nice top-down view of how the data transformation is playing out across the financial services industry, I would add, because our clients and partners range across the full spectrum of providers.”

Rhodes says he was hired by Morningstar to lead its digital transformation thanks in large part due to his deep technical background, having spent 13 years at IBM Research. There, he led the financial modeling research efforts of IBM’s Global Services business units.

“We had a saying that data, plus algorithms, plus action, delivers results,” he said. “Each piece of this puzzle requires the right thinking, the right processes, and the right capabilities.”

Rhodes pointed out that, from his perspective having worked at IBM, big data technology and topics such as “artificial intelligence” and “neural nets” are in fact nothing new.   

“Neural net technology has been around for decades, literally since the 40s and 50s when the first research papers on the topic were published,” he noted. “So, why are we now discussing it so much, both in the context of financial services but also more broadly? Largely because affordable digital memory, computational power and reliable storage are all coming into line today to allow A.I. to redefine business as usual.”

As he explained it, a financial services company can now run a cloud-based data storage and computational system for something like $50 a month through one of many providers, which just 10 years ago would have cost six-figures to run. 

“Leveraging advanced techniques is becoming so much easier and cheaper to do, and we can all benefit from that,” Rhodes said. “At Morningstar, we are using this for our new quantitative fund ratings, as an example. We have been trying to figure out a way to model what our analysts have been doing—that’s what this new quantitative product set is doing. We have been able to dramatically expand our rating capabilities with this approach.”

Client Service May 23, 2018

Asian Americans Could Use More Education About Retirement Planning

A MassMutual study finds Asian Americans are more thoughtful retirement investors than other demographics, but they lack education about how long they will need to make their savings last and the timing of claiming Social Security.

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Asian Americans are more concerned than other demographics about making missteps with their retirement savings in the years just before and just after retirement, research from Massachusetts Mutual Life Insurance Co. finds.

According to the MassMutual Asian American Retirement Risk Study, Asian American retirees and pre-retirees worry more than other Americans about taking too much risk (69% vs. 44%) or making a poor investment decision (67% vs. 54%) within 15 years before or after retirement. Asian American pre-retirees (75%) are especially concerned about taking too much investment risk.

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“While many Americans focus on being ready to retire, no other ethnic group that we’ve surveyed is as focused on their financial goals as Asian Americans,” says Wonhong Lee, head of MassMutual’s Diverse Markets. “And these findings are actually aligned with other studies we have conducted in the past, as the key driver for this community is to attain financial security in every key milestone in life, such as paying for their children’s education or retiring in comfort without being a burden to their children.”

More so than others, Asian American retirees and pre-retirees believe workers approaching retirement should reduce their investments in equities (64% vs. 53%). Moreover, Asian Americans are more likely to have more conservative investment goals, aiming for their assets to “match the market” (43% vs. 32% of the general population) rather than outperform the market (55% vs. 65%). Despite those sentiments, the study found little difference between Asian Americans and the general population of retirees and pre-retirees in regard to their overall risk tolerance or their allocation of retirement assets between equities and fixed-income investments.

Asian Americans do have a stronger preference to be heavily involved in managing their finances and investments, particularly among retirees. Compared to the general population of retirees, for instance, Asian American retirees are more likely to enjoy managing their own money (80% vs. 59%). When looking only at Asian Americans, only two in five retirees (42%) prefer an investment that allows them “set-it-and-forget-it” compared to nearly three in four pre-retirees (72%).

Underscoring their focus on investment goals, Asian Americans are considerably less likely than other Americans to engage in behaviors that reduce retirement savings such as making withdrawals or hardship loans or suspending contributions, according to the study. While one in four American retirees and pre-retirees (25%) report engaging in those behaviors, Asian American respondents are half as likely (11%) to say the same.

Despite their hands-on approach to investing, the study findings show there is room for Asian Americans to obtain more education about retirement planning.  Fewer Asian Americans are confident projecting how many years they will spend in retirement and therefore are not planning to meet those needs, the study shows. More than half of Asian Americans (53%) are uncertain about the length of their retirement compared to a little more than one-third of Americans overall (36%). Moreover, fewer Asian American retirees (63%) are confident they know how to claim Social Security at the right time to maximize its benefits, than American retirees overall (75%), according to the study.

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