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
Twitter Email

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

Most Read IRIS Articles of the Week: April 17-21

Most Read IRIS Articles of the Week: April 17-21

Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, April 17-21, 2017 


Click the headline to read the full article.  Enjoy!


1. Market Keeping You up at Night? Look for the Right Hedge


Like so many others in the industry, I was wrong. For years, I was certain that the bull market was nearing its end. I thought the market was over-extended, and that, surely, the wild equities run was coming to an end. But everyone else was bullish, and perhaps rightfully so. And while I’ve watched equities continue on their spectacular rise, I do think now is the time (really!) to put a hedge in place. Here’s why. Here’s how. — Adam Patti

2. How to Manage Bond Market Pain and Seek the Gain When Rates Are Rising


The realities for fixed income investors have changed. How is this being reflected in markets? Bond investing has become increasingly difficult over the past decade. Markets have been heavily distorted by ultra-low interest rates and quantitative easing, as well as by extreme risk aversion in response to the global economic crisis and the eurozone debt crisis. — Nick Gartside

3. Seven Reasons You'll Fail as a Financial Advisor


Is being a financial advisor worth it? I am an optimistic person and I encourage other people to keep a positive mental attitude (shout-out to Napoleon Hill and W. Clement Stone). However, by taking a good, hard look at the negatives in life, we can successfully pivot towards the positive aspects that will help us achieve our goals. — James Pollard

4. The Secret to Turning Every Prospect into a Client


How do you treat one of your most valued, existing clients? Here’s a list of some things that come to mind. — Andrew Sobel

5. Why Do Clients Change Advisors?


According to many advisors I speak with, the only clients that leave are those who have died. And while attrition may not be a big problem in this industry, I have to assume that at least a few clients change advisors without doing so via the funeral home. — Julie Littlechild

6. Why You Should Focus on Getting Referral Sources


I was talking with an advisor last week about how to get into conversations about what he does. He was relaying the story of going jogging with a friend who could be a good client but is, more importantly, connected to a large network of people who fit this advisors ideal client description. — Stephen Wershing

7. How Big Picture Thinkers Seize More Opportunities in 7 Steps


Big picture thinkers are not unicorns - rare and mystical. And they were not born with the innate ability to think big. They do, however, pay attention to the broader landscape and take the time to think, analyze and evaluate. — Jill Houtman and Danny Domenighini

8. 5 Actions to Build Your Reputation


Your reputation is who you are and how you show up, Monday to Monday®.  Many of us take our image and reputation for granted.  Give careful thought to the kind of reputation that you would be proud of Monday to Monday® and that would resonate with your purpose and priorities. — Stacey Hanke

9. How Are You Poised to Begin Welcoming GenZ to Your Workplace?


The generational changing of the guard is a fact of life as old as time. Young replaces old in responsibility, importance, control and culture. Outside of the family, the workplace is perhaps where this is seen most regularly by most people. — Shirley Engelmeier

10. Are Price Objections REALLY Price Objections?


Next time you hear your prospects give you price objections, it’s not because of the price. The give price objections because they don’t know the full value proposition that they’d be paying for. And it’s not based on their need, or your features and functions. It’s based on the buying criteria they want to meet internally. — Sofia Carter

11. Understanding the Economic Value of Transition Deals


Last week we wrote about the economic rationale behind going independent vs. moving to another major firm as an employee. As a follow-up topic, we thought it prudent to analyze transition packages attached to big firm moves and peel back the layers of the onion to show the components of these deals. — Louis Diamond

Douglas Heikkinen
Perspective
Twitter Email

IRIS Founder and Producer of Perspective—a personal look at the industry, and notables who share what they’ve learned, regretted, won, lost and what continues to ... Click for full bio