The Big Takeaway on Big Data for Advisors
The most successful advisors of the future will crack the code to combining digital solutions with human capital to provide a more comprehensive offering to clients — and achieve greater scale in their practice.
In fact, in the 2015 Advisor Authority Study conducted by Jefferson National and Harris Poll, we learned that the most successful advisors are truly tech-obsessed. Advisors who manage more assets and generate more revenue spend substantially more on technology and adopt technology into their practice at twice the rate of the average advisor.
When it comes to technology, there are those in the financial advisory industry who would say that 2015 was the year of the robo. Robo advisors dominated the headlines as major online brokerages such as Schwab and Vanguard launched their own versions, and asset managers such as BlackRock and Invesco started following suit. Aite Group estimated that digitally-driven investments would reach $53 billion by year-end 2015, up from $2 billion in 2013. Cerulli Associates estimates that the market for robo platforms used by advisors will be close to $500 billion by 2020.
But robo advisors aren’t advisors at all. They are digital solutions to provide low cost portfolio allocations. And perhaps the most lasting effect that the “rise of robos” will have on our industry is helping to create the bionic advisor — a term coined by Michael Kitces to describe the advisor who understands that technology can actually magnify the power of human capital — not diminish it or take its place.
Just as 2015 was the year when robos pushed more advisors to confront the inflection point between human capital and technology, 2016 will be the year when more advisors will use technology to capitalize on the vast range of data available in their practice to serve their clients better. Welcome to the year of big data in wealth management.
UNDERSTAND THE SHIFT
To define big data in the context of wealth management, consider all the diverse sources available for an advisor to understand a client, a client’s family and their estate. Everything from spending and investing, assets and liabilities, business interests and financial goals. And, beyond the financial to the personal: specific biographical and demographic details, unique preferences and important life goals. In practice, big data is a transformation of this disparate information and disaggregated data, using computing power to efficiently identify patterns and trends. This can help you understand your clients’ needs and wants — and allow you to serve your clients and their families more holistically and retain them more effectively.
Advisors’ shift toward big data is already in progress. It has fundamentally transformed the industry, and has given a competitive edge to the early adopters. But it has been a long secular journey of learning how advisors can best leverage big data to advance their approach to prospecting, engaging and serving clients. Through the power of big data, advisors can understand the power of demographics, understand the power of segmentation, make more informed decisions around marketing and prospecting — and ultimately attract new clients.
By leveraging big data, advisors can make more insightful decisions to enhance relationships with existing clients, create the opportunity for using more sophisticated strategies, create room for more in-depth discussions about long-term financial goals — and, ultimately, gain a greater share of wallet. Using big data in these ways, we see advisors innovate, creating a better user experience on the front end and a more scalable and cost-effective process on the back end to ultimately grow their practice and expand their franchise.
This requires partnering with technology providers that can enhance the traditional approach to planning and practice management with comprehensive data-mining capabilities. As more advisors seek to harness the power of big data, it has increased the demand for data analytics and account aggregation platforms like Quovo. It has led to several prominent transactions, from Morningstar’s acquisition of ByAllAccounts, to Envestnet’s acquisition of Yodlee last summer, to TD Ameritrade’s recent acquisition of FA Insight earlier this year.
BIG DATA ADVANTAGE
Now, a piece of advice: Don't miss the forest for the trees. Big data is not data for data’s sake. But it is a tool to magnify value for clients — and a more efficient and effective way to work. You may be inclined to look at an individual client or a specific point in time. But the real power of big data is the big picture view that it can provide. One client and one data point is one tree. Many clients and many data points make a forest. By viewing clients and data in aggregate you can identify the actionable trends in a way that allows you to see the whole forest, so you can help it grow and prosper — and protect it from going down in flames.
So don’t be left behind in this year of big data. Learn from the early adopters. Use it to your advantage. You can better understand and manage the market. You can better manage and grow your clients’ wealth. You can better manage and grow your practice. And this much is crystal clear: You won’t be replaced by technology. You won’t be eliminated by big data. Because, as your clients accumulate more wealth, as their financial lives becomes more complex, nothing can replace the value of guided advice. Clients need that human touch to guide them through periods of growth and periods of volatility. They need the human capital that can survey all the inputs and reach the right conclusion. And the last thing they want is to call a robo — and get a busy signal.
Mitchell H. Caplan is CEO of Jefferson National.