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Practice Management > Building Your Business

Even Small Firms Can Use Big Data

By Dan Skiles

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For those who have not heard, Big Data refers to the ability to analyze or “crunch” significant volumes of data to better understand trends. Evaluating Big Data can be confusing and potentially overwhelming, especially if your firm isn’t very good at analyzing “small” data. Let’s face it: Some advisors love reviewing reports, and others would prefer to focus on other tasks. Let’s review some small-data items for all advisors to consider, and identify potential Big Data opportunities.

Do you know how much growth your firm needs in new assets to remain even in your total assets under management? Each year, your clients continually withdraw funds, much of which is predictable. For example, how much will your clients withdraw in 2014 for required minimum distributions from retirement accounts, periodic ACH transactions and check disbursements?

An easy place to start is to review what happened in 2013 and then adjust the total number based on your expectations for 2014. If you see that approximately $10 million is expected to be withdrawn in 2014, then you know how much you need to grow in order to maintain your total assets under management.

Another small-data item to consider involves a number of data points for your existing client base. What is the average and median age of your client base? How many of your clients are in the accumulation phase of their life? How many have children going to college in the next five years? What is your typical share of wallet for each client relationship? Your CRM system is probably the best place to start. There might be ad hoc reports already available, or you could build a customized report. If you are not tracking some of these data points today (e.g., age of client’s children), then it is time to start a small project to gather this information.

Leveraging Big Data is about generating results from large data sets. For advisors, Big Data opportunities will be offered from the partners they already work with, including custodians, CRM providers, portfolio reporting systems and document imaging systems, for example. A number of advisors use multiple reports to assist them in monitoring their business and identifying actions to help them meet their business goals. Part of the promise with Big Data is that it can minimize the amount of work needed to bring complex data together, and it can do this work in a faster, more efficient manner.

Big Data is also about providing advisors with new information to help analyze their businesses, especially for firms that have experienced consistent growth year after year. Many small “cottage” advisory firms from several years ago are now medium-sized businesses where the principals no longer know every client like a personal friend. In these firms, Big Data queries can help identify trends that have occurred during the past 10 years that were not immediately obvious. There is always a risk of losing the true pulse of your business, especially during significant growth years. Big Data queries will be a tool that will help you stay connected to your business.

Integration between systems is another opportunity for advisors. A number of systems advisors use have overlapping data points, as well as their own unique data points. It is possible to produce valuable results when you combine information. The goal is to marry the information from different systems so that it is more easily available, regardless of the number of systems involved. For example, data from your financial planning software, performance reporting system, rebalancing system and CRM would be shared and efficiently exchanged, with each product providing their unique data points.

There are a number of reporting opportunities for advisors to better manage and ultimately understand the finer details of their firm. The goal for advisors now is to make sure that they work well with small data so they are ready to embrace Big Data.

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