Advisers who embrace big data will have a leg up on competitors

Tech experts predict data analysis will lead to improvements in financial planning for clients, plus better business practices that can boost adviser profitability.

Jan 25, 2015 @ 12:01 am

By Liz Skinner

Financial advisers who want to climb to the top of the profession — or remain there — had better start looking for ways to glean more intelligence from data.

A convergence of technologies increasingly makes it possible and affordable to combine disparate information sets into systems that can analyze the data in its totality. For advisers, the outcomes of such “big data” projects will lead to improvements in the financial planning process for clients and better business practices to boost a firm's profitability.

(Don't miss: Our full Spotlight on Technology special report)

Extending the Reach

“Financial advisers should be using data to find patterns, give better advice and develop more specific profiles for clients,” said Paul Rowady, director of data and analytics for TABB Group. “By harvesting more out of data, firms will be able to serve market segments that are currently beyond their reach.”

To date, big data discussions have mostly focused on its promise, not its reality. But custodians and other firms that deliver technology to financial advisers will be unrolling over the next year or so such capabilities to make sense of the vast collected data of an entire industry, and experts predict advisers who embrace big data will have a leg up.

(Related read: Big data is also now a weapon for industry regulators)

Big data potential for advisers is expected to grow by leaps and bounds in just a couple of years to an evolution dubbed the “Internet of things” because of the everyday devices that will send and receive data.

That's when information from smart home sensors, wearables such as

FitBit, and transactions from digital pay systems like Apple Pay, Google Wallet and others, will be integrated into data systems.

Technology companies already are beginning to layer real-time data with predictive analytics. The resulting solutions are helping firms identify trends and administer “what-if” scenarios aimed at generating actions that lead to a desired outcome.

For advisers, one potential opportunity arises from having personal health information from fitness trackers and other health data when creating financial plans.

(Experts weigh in: Identifying what's next in adviser technology)

Life Expectancy

“If you know both clients are likely to have a shorter life ex-pectancy, their portfolio is going to look very different,” said Joel Bruckenstein, a technology consultant to financial firms. “It's planning for 20 years versus 40 years.”

Mr. Bruckenstein also envisions tracking people through their cell phone or watch to determine, for instance, that they check their portfolios every Saturday morning. The action on the part of the adviser, or rather her automated system, would be to send the client messages about their individual retirement accounts or other planning advice 15 minutes before their usual login time.

The desired outcome? The client takes the advice.

"It sounds like sci-fi, but it's closer and coming sooner than you think,” Mr. Bruckenstein said.

In fact, companies of all sorts are boosting spending on technologies related to big data as studies show early adopters of these systems are enhancing their businesses.

The Gartner Group reports 73% of organizations in 2014 had invested or planned to invest in big data in the next two years, and market research firm Wikibon estimates sales of big data hardware, software and services will jump to $50 billion this year from $28.5 billion in 2014.

These dollars are being spent because of the productivity and profitability gains that big data promise.

About 60% of firms using big data systems reported increased productivity, according to a March 2014 Harvard Business Review Analytic Services survey of 500 managers and executives. About 58% said they had increased revenue and 38% had reduced risk, the survey said.

Companies that deliver technology tools to financial advisers, including custodians, broker-dealers and turnkey asset management platforms, already are working on big data -systems.

For example, LPL Financial will roll out a pilot project in a few months that focuses on better client management, and the company hopes by fall to make it available to all of its advisers.

Advisers who helped LPL develop the system “are talking about hours of productivity gains and being able to better meet the needs of clients,” said Victor Fetter, chief information officer for LPL.

Called ClientWorks, it brings together all layers of client data from multiple accounts and aggregates it for the adviser to better understand portfolio performance and improve client service, he said.

An adviser will be able to create a filter, for example, that would identify all clients with remaining required distributions or those whose cash positions have exceeded 20% — tasks that previously were time consuming, Mr. Fetter said.

“We're talking about using big data to help find better insights and make more appropriate and more informed decisions,” he said.

Mr. Fetter expects the next phase of ClientWorks to allow advisers to run Monte Carlo simulations and receive alerts when a portfolio drops out of that simulation because some condition has changed.

TD Ameritrade Institutional plans to roll out a "next-generation' platform this year that will be customizable based on users' work roles, and can leverage big data to adapt to each user's behavior, according to TD spokesman Joseph A. Giannone.

Envestnet, a Chicago-based TAMP, is using its giant storehouse of data from 35,000 financial advisers it works with to provide data for its clients on how they compare with peers.

The firm is now working on the next phase, developing tools to show advisers what steps to take to address possible areas of opportunity and improve business areas that challenge them, said Bill Crager, president of Envestnet.

“Big data is wonderful in many ways, as it can be insightful and expose what's occurring, but it always gets to the big question of what to do about it,” he said.

Foretelling Action

Through its technologies, Envestnet wants to help advisers discover important risks, such as clients poised to leave, based on observing certain patterns that foretell the action. Ultimately, the firm wants to get to a place where such behavior triggers automated processes and communicates particular messages to the right clients.

While these advanced technologies offer immense business possibilities, the future of big data also stirs concerns — namely, privacy issues and data security.

Earlier this month at the Consumer Electronics Show in Las Vegas, Federal Trade Commission Chairwoman Edith Ramirez spoke to firms that are making health trackers, connected cars and smart home appliances and directed them to protect client privacy.

She pointed out that “when patched together,” the devices will show “a deeply personal and startlingly complete picture of each of us.”

(Expert insight: Envestnet's Jud Bergman discusses the most disruptive adviser technologies)


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