Big Data: Why It's Important and How It's Changing the Industry

Big Data: Why It's Important and How It's Changing the Industry

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 workYou 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
Investing Insights
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Mr. Caplan has more than 25 years of experience in the financial services industry, running both public and private companies.  As CEO, Mr. Caplan is focused on developin ... Click for full bio

Retirement Planning Has Its Limits: How to Prepare

Retirement Planning Has Its Limits: How to Prepare

Retirement planning is one of the issues that commonly leads clients to consult financial advisers. One of its essential aspects is creating a plan to save and invest in order to provide a comfortable retirement income. Ideally, this starts many years ahead of retirement, even as early as your first paycheck.

As retirement comes closer, planning for it expands to take in a host of other considerations, such as deciding when to retire, where to live, and what kind of lifestyle you hope to have. When retirement becomes a reality, the focus shifts to carrying out the plan.

All of this planning is crucial. Yet, for both financial advisers and clients, it's good to keep in mind that planning has its limits. In the post-retirement years, it may be helpful to think in terms of preparing for old age rather than planning for it.

The older we get, the more important this distinction between planning and preparing becomes. Too many life-changing things can happen without regard to our best-laid plans. Often they occur unexpectedly, resulting in emergency situations where urgent decisions have to be made. A stroke or a fall, a diagnosis of terminal illness, a broken hip that leaves someone unable to go back to independent living—and suddenly, right now, the family needs to find an assisted living facility, arrange for live-in help, or sell a home.

What are some of the ways to prepare for these contingencies?

  • Explore housing options well ahead of time. Find out what assisted living, home care, and nursing home services and facilities are available where you live and whether they have waiting lists. Have family conversations about possibilities like relocating or sharing households.
  • Research the financial side of these options. Investigate the cost of hiring help at home, assisted living facilities, and nursing care centers. Find out what is and is not covered by Medicare and long-term care insurance. For example, people are sometimes surprised to learn that Medicare does not pay for nursing home care other than short-term medical stays.
  • Designate someone to take over decision-making, and do the paperwork. Execute documents like a living will, medical power of attorney, and contingent power of attorney. Update them as necessary, and give copies to your doctors, your financial planner, and appropriate family members.  
  • Start relatively early to downsize. Well before you're ready to let go of possessions or move into smaller housing, start considering what to do with your "stuff." Focus on the decisions rather than the distribution. There's no need to get rid of possessions prematurely, but decide what you want to do with them—and put in writing. Do this while it's still your choice, rather than something your family members do while you're in the hospital or nursing home
  • Do your best to practice flexibility and acceptance. No matter how strongly you want to live in your own home until the end of your life, for example, it may not be possible. The physical limitations of aging can limit our choices, and even the best options available may not be what we would like them to be. It is a profound gift to yourself and your family members to accept these realities with as much grace as you can muster.
     

Finally, please don't underestimate the importance of planning financially for retirement. Because the bottom line is that you can't plan for all the things that might happen as you age, but you can prepare to deal with them. One of the most useful tools to cope with those contingencies is having enough money.

Rick Kahler
Advisor
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Rick Kahler, MSFP, ChFC, CFP is a fee-only financial planner, speaker, educator, author, and columnist.  Rick is a pioneer in integrating financial planning and psycholog ... Click for full bio