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Practice Management > Building Your Business

In Financial Data, Small Is the New Big

By Ellen Uzelac

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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.”

Data Trackers

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.

“Featuring advisors who are nearby geographically may be a good strategy but we need to refocus on making the consumer experience meaningful and relevant. Also important is figuring out who you are, what your life issues are, where you are financially and what advisors serve clients like you,” he adds. “It’s not just about the volume of data but how varied it is. You need to keep it relevant.”

WealthEngine, a data company in Bethesda, Md., that tracks more than 13 million people with a net worth of $1 million or more, offers a more traditional approach to prospecting by using over 65 data providers to provide a 360 degree view of the high-net-worth space.

“It’s not just the traditional age, gender, marital status and kids. It’s your industry, ethnicity, religion. Are you a golfer, a pet owner, a skier, a gambler? It’s about travel habits, cars in the driveway, the non-profit charities you’re involved in,” says James Dean, who heads the company’s luxury and financial practice. “Is there evidence of high spending or thrift and what do you spend money on?” Once an advisor pinpoints a prospect, WealthEngine can deliver that person’s email, phone number and home and business addresses.

The primary way advisors use the information is as a “circle of friends” referral engine, according to Dean. In other words, advisors can cross reference everyone in the data base and figure out who knows who.

“It allows for bigger referrals because now you know your client is connected to someone with $5 million in assets who sits on a non-profit board,” says Dean. “So when you meet with your client, you can say I’ve been doing research on John Smith. I think you might know him. I’d love to get an introduction.”

On average, individual advisors pay $3,500 to $5,000 a year for the service. Institutions that purchase it for their elite advisors pay between $50,000 and $500,000 a year.

One relatively new entrant is the digital lead generation service Vestorly, which made headlines in May when it signed a deal with United Capital to target 100,000 prospects already in the advisory firm’s data base. The vehicle: a “curated” and “dynamic” digital newsletter, much of it tagged with lifestyle content, which is emailed under individual advisors’ names to prospects. The content is based in part on interests expressed by prospects on their own social media. Advisors can also see who has read and shared the information.

“Our click-through rates have doubled with this,” says United Capital chief executive Joe Duran. “What we hope is to have some organic growth just from people receiving it. What this does is stop being a hypothetical. We can actually see what they’re reading, not what they say they are doing. The goal is to create a system that is imminently scalable but completely personalized.”

Prospects in the United Capital data base are people who have interacted with the firm’s Money Mind exercise or who received direct mail from the firm but never responded. A couple of weeks into the pilot launch to 15,000 prospects, United Capital had signed up two new sizable accounts.

Mining His Business

Probably no one mines his own business better than Greg Friedman, who is both co-founder and president of Junxure, a leading CRM solutions provider, and founder and CEO of Private Ocean, an advisory firm in San Rafael, Calif., with $860 million in assets under management.

Friedman uses his CRM constantly to gather data on 10 metrics—among them, revenue per client, assets under management per client, revenue per hour per client. It is data that helps him both get referrals and run his business more profitably and efficiently—both of which lead to growth.

“At a high level, day to day data is being captured that’s telling me by client, by employee, by activity what’s happening,” he says. “How much time is spent in meetings, on calls, staff time versus professional time? These are data points and trends I monitor and I make business decisions around that. You want to mine your own data to understand your niches, understand your opportunities and understand where you want to focus your efforts.”

As an example, Friedman uses data mining to uncover which clients give a lot of referrals, a few and none at all. Once identified, he makes it an agenda item for the next client meeting.

“What we say is ‘Gee, is there something we could be doing better to make you an advocate? Why are you not referring us?’ That leads to amazing benefits, gets good feedback about what might be missing in a relationship, and clients are thrilled to be asked because it shows a deeper caring,” he adds. “We’re very direct. It’s how we grow our business.”

Friedman offers one cautionary note.

“I saw an ad for a CRM that promised it could grow business by 30% in six weeks. I literally laughed. Ultimately your business will grow through you taking action. There’s nothing you can do pushing buttons that will grow wealth management firms,” he says. “A CRM can help you get at bat but there are no shortcuts. You still have to do some hard work, be with people, pitch them and close them. A CRM can help focus those activities. It can certainly help get people to the door. You still have to shut it.”

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