The Pros and Cons of Being a Data-Driven Advisor

What You Need to Know

With so much data at our fingertips, advisory firm leaders can become dependent on it.
Data can help increase productivity. When processes are tracked, a leader can see trouble spots in systems faster...
Data doesn’t tell you how your business could change if you could close clients faster.

We live in a big data world.

Advancements in analytics help advisory firm leaders make faster, more informed decisions about what to prioritize and where to focus. The introduction of “business intelligence” has made it easy to spot patterns, trends and client behaviors. It gives advisors a snapshot of what their clients are and aren’t doing.

Big data is good — except when it isn’t.

With so much data at our fingertips, advisory firm leaders can become dependent on it. For all the good it can do to show an advisor what has happened or is happening in their business, it cannot by itself create true innovation.

If you understand the limitations of data, you can use it to your benefit. Here, we’ll look at the pros and cons of being a data-driven advisory firm owner.

Pros of Data-Driven Advisory Firms

When a firm has good data, it can find easier ways to improve both its client and advisor experience. That is, you can improve how you serve clients and in doing so improve how an advisor feels serving a client. It will measure client satisfaction and employee satisfaction.

On the client side, capturing data on how they interact with their advisor or advisor-provided technology solutions can show what clients really want, what they’re not getting and what problems they’re having that you need to solve.

For employees, data can help increase productivity. When processes are being tracked, a leader can more readily spot issues in systems and processes that break down. If those processes are corrected, a firm can quickly expand capacity as it gets everyone following the same workflows and taking consistent actions.

As employee productivity increases and the client experience becomes smoother, increased revenue and decreased expenses are ultimately the result. As your firm enters this new phase of growth, it can achieve a competitive advantage over other firms struggling to spot their weak areas. In addition, your firm can onboard clients faster, serve them better and keep them happier over the long term.

The results are simply good business outcomes. Employees enjoy their job, so turnover is low; and clients enjoy their service, so retention is high.

With potential results like that, where could data possibly steer you wrong? It’s not so hard to see when you know where to look.

Cons of Data-Driven Advisory Firms

Data tells us only about the past or the current moment. On its own, it cannot innovate or create change in an advisory firm. It can fix only what is wrong in the moment.

This repetitive cycle — looking at the data, fixing what’s wrong, looking at the data, fixing what’s wrong — doesn’t tell us where the industry might be changing or where a firm may need a deeper strategy to enhance growth in the future.

In other words, data is data. The creativity found in being blissfully ignorant of data often fuels some of the most innovative (and perhaps disruptive) advances in industries. It also allows us to think outside what is happening today and find new ways to evolve as a firm.

Another con is that when data is judged as positive, it’s easy for an advisory firm to become complacent. A firm that is 100% data-driven can easily take the “if it ain’t broke, don’t fix it” mentality that has caused many businesses to miss out on the innovation and disruption that ultimately displaces them.

Unlocking Data to Transform Your Business

Data can’t help you envision how your firm can be better or different, but it might point you in the right direction, especially if you have the imagination to interpret your data correctly.

A good example is the sales process. Imagine that you’re reviewing data about your sales performance: Your close ratio is 90%. On the surface, that number is great — you likely wouldn’t think that you might have any sales problems at all. But that data tells you only what has happened in the past.

It doesn’t tell you how your business could change if you could close clients faster. Nor does it provide insight into how to maintain a high close ratio while also improving your accessibility to prospective clients and improving the human connection you make with them.

The only way you can truly improve your business through data is if you have the courage to look at the numbers, and then ask yourself what you can do to improve them, even when times are good. From there, you have to take the initiative to make decisions about how to change the status quo.

Many advisors may not feel a pull to disrupt their businesses because they see financial advice as a moat that automation and technology can’t cross. Often I hear while consulting that “robots cannot learn to give advice” — and “teach humans to trust it” — and “financial advice will never truly be disrupted.” The same could be said for other professional service industries like accounting or law.

But what if it were true? What if humans did start to trust robot-given advice? The next industry disruption may not be far away.

Using Innovation as the Competitive Advantage

Before Apple introduced the iPhone and changed cellphones forever, telecommunications could have been considered a relatively mature industry. But Apple not only entered the space with a better product, it also radically changed the behavior and expectations of the people who used cellphones.

Did anyone see or prove with data that kind of shift taking place before it happened?

Microsoft, much to its own detriment, famously laughed off the introduction of the iPhone.

Financial advice is a stable and maturing profession at present, but that doesn’t mean it will stay that way. Data can’t tell you how to make clients feel more connected to you, but it can show the results of your decisions to improve those connections.

Instead of being a data-driven firm, be data-informed and innovation-driven. Ask how you can be more trustworthy, more empathetic and more relevant in your clients’ lives.

If you can successfully answer those questions, and monitor your progress using some data, your firm can stay ahead of the status quo and be a disruptor rather than the soon disrupted.