Has big data had its moment? The advisory profession has been abuzz about data mining for the past year or so—and no wonder. Just imagine your ideal client—a physician with a net worth of $10 million, a Jag in the driveway, a sailboat at the dock and a dog at the front door—and big data will find her for you.
But as Barnaby Riedel, chief research strategist at Riedel Strategy, a Newport Beach, Calif.-based market research and communications firm, puts it: “Big data provides a fantastic tool to get more access, get quicker access and get people in their wheelhouse that advisors might not have had access to before. But data is only as powerful as the people interpreting it. Often, it offers promises unfulfilled. Data is easy, insights are hard.”
While big data remains a part of the landscape, forward-thinking advisors are experimenting with something that hasn’t gotten much of a shout out: small data mined from their own in-house software programs.
“When I apply this in the advisor context I immediately get a little bit stuck about the relevance of big data for advisors. We don’t exactly have that many clients that make data sets all that big in the first place,” according to certified financial planner Michael Kitces, author of The Kitces Report and Nerd’s Eye View blog. “What is relevant is small data. As opportunities, what can we do to look at the data we do have within our practice and analyze it? This is new for us.”
If small is the new big, what exactly is it that advisors can analyze to help them grow wallet share while also improving their service model? Among other things, says Kitces, they can extract from their CRMs and portfolio management software data points that can answer such questions as: What is the average age of your clients? Average revenue? Distribution of revenue by age group? What portion of your revenue in the last year came from new clients versus existing clients? Where did your new clients come from? How were they referred? Is there a commonality to them?
“Insights like these can be very meaningful,” Kitces adds. “And what aren’t we tracking? Do I know what percentage of clients in the last three years brought a certain level of revenue? Maybe not. Sometimes the data is not there to track. So what data should we start recording? In the past, this would have been a very labor-intensive manual process. Technology has made it radically more efficient.”
Riedel Strategy recently took a look at the big data story to uncover what hasn’t made headlines. For starters, chief marketing strategist Alyssa Riedel looked outside of financial services, commonly a slow adopter, to see what other industries are doing. One case study involved the dental industry, which found itself in a sweet spot thanks to the move to robust practice management software and electronic medical records.
“They got smart by realizing they already had their own information. They could mine their own data and find out what kinds of clients and services were the most profitable, what kinds of clients didn’t show up for appointments and they could use that data they already have to bring powerful insights to improve efficiencies,” Riedel says. “Advisors can do the same.”
One actionable item, according to Riedel: Using your CRM, identify the top 10% of clients and create a “best of” profile that includes characteristics like gender, age, household income, risk tolerance. Likewise, profile clients you know you are losing money on.
“It’s important to get a clearer picture of the people they love working with,” she adds. “What’s working really well and what’s not? Most advisors have this data at their fingertips. The hard part is what to say and how to say it. That’s where the magic really is. One thing that hasn’t changed is that the process of landing a client is still very similar: the eyes, the handshake. Data will never close a deal for you.”
Data analytics consultant Marcia Tal, who heads Tal Solutions in Oakland Gardens, N.Y., says the reason many advisors haven’t been overly successful at data mining is that they have failed to be clear and articulate about what exactly it is they are looking for.
“Small data to my mind is more targeted data, more contained data that is still not fully utilized and being mined,” she said. “You need the advisor to sit down and say this is the exact problem we are looking to solve or this is the opportunity we are looking to bring in—and then create a scope that is manageable. The whole idea of connecting the dots is really what data mining is all about.”
What is pushing the big data mining trend that has held the industry in its thrall? An expansion of publicly available information and the technology to parse it.
As Mike Alfred, CEO of BrightScope, a financial information company in San Diego, observes: “Everything is being tracked. There’s a sensor in your phone, in your car. Where people used to know you were friends with Martha anecdotally, now you know it on Facebook and LinkedIn. Science, data and technology have proliferated to the point where we all have a computer in our pocket more powerful than what the wealthiest person in the world had 20 years ago. It’s connecting and making all the information easier to use and understand. We’re going to a world where there is a lot less mystery.”
BrightScope, which aspires to become the Yelp of financial advisors, fancies itself a combination of LinkedIn and Carfax. Access is free. Among its offerings are digital profiles of the 680,000 individuals registered with the SEC and Finra. More than 5,000 advisors have added their own content. Potential clients then search the site with requests like: “Show me all advisors within a 25 mile radius of my zip code who specialize in retirement planning.”
At the moment, Alfred says BrightScope is planning enhancements to the money-losing Advisor Pages. In the works: data from state insurance departments and other information that will help customize the advisor-investor introduction.