The transformative potential of data within your financial advice firm can not be overstated. But there are key data opportunities and risks that advisers need to navigate to stay ahead of the curve, including:
- Managing existing client data, including CRM and portfolio information gaps
- Data-driven platform and investment management decision-making
- Technical advice recommendations and the role of data
- Maximising value-creation for advised clients
Managing existing client data
A fundamental challenge facing financial advice firms is the management and utilisation of their client data. The fact is every business’ CRM looks like Swiss cheese - irrespective of your CRM system or your advice firm. By this we mean it is full of holes. Any CRM x-ray or diagnostic will uncover data gaps of all shapes and sizes, with no rhyme or reason to them. This includes both CRM and portfolio management data – both off platform and on platform. By completing a CRM diagnostic, you will identify and ultimately be able to manage data gaps across your book of business.
A comprehensive understanding of the client’s existing position is the foundation of all advice ranging from good to great. In our experience, advisers often encounter incomplete fact find information where critical details such as reasons for seeking advice, goals and objectives, net cashflow, or risk tolerance are missing. These gaps lead to suboptimal advice, ultimately leading to strategic client benefits being left off the table. To bridge these gaps advice firms need to prioritise comprehensive data collection and regular updates through reviews. Digital fact-find capabilities that are adviser and client facing are integral to this. Integrating your CRM with data validation sources can also help in creating a holistic view of the client's financial situation. Regular client interactions and automated data verification processes will also help to ensure that the information remains accurate and up to date.
Data-driven platform and investment management decision-making
Data-driven decision making is transforming investment strategies and platform choices in financial advice firms. By leveraging data insights, advisers can make more informed and effective decisions, leading to better outcomes for their clients.
Over the past decade we have witnessed a proliferation in platform recommendations. Advisers are recommending more platforms than non-advice firm industry participants realise. During this time Padua has developed its ‘Research Manager’, an extensive database of over 900 platforms across investment, super and pension. In addition, we also aggregate investment data on over 25,000 investments, from several different sources. We then use data validation and verification processes to ensure the accuracy and relevance of this research, for our adviser network that rely upon on it. The breadth and depth of this platform and investment data is unparalleled – and it ensures advice firms can evaluate and recommend platforms and investment strategies based on a wide range of features and benefits specific to the needs of their clients.
For example, some firms use data analytics to identify their existing client platform and underlying investment strategy. This allows advisers to recommend platforms and investment strategies that align with both the client's needs and the advice firm's practice efficiency requirements. In platform selection, data-driven insights can help in evaluating the costs of the platform, including cash account impacts (made more relevant under the RG97 environment), as well as other costs like brokerage and transaction costs. It also enables the benefits and features of different platforms to be objectively compared, enabling advisers to choose the most suitable options for their clients.
One noteworthy case is the use of data analysis within the M&A space. Both the buy and sell sides can benefit from insights to investment, management and practice consultants. When acquiring a client book, it is critical the acquiring firm understands the data gaps within the book they are buying, and their severity. It will impact the valuation multiple you should apply and may also impact your decision to acquire in the first place. If you are looking to sell your advice firm in the foreseeable future, it is equally important – to ensure you maximise its value - by filling the data gaps in your CRM pre-sale – and enable a better valuation multiple.
The role of data when it comes to your technical & strategic recommendations
Data plays a crucial role in shaping technical and strategic recommendations and providing advisers with technical support has never been more important. The adviser exodus of the past decade is well documented. In Technical Services there’s been a similar exodus, tracing all the way back to the financial crisis of 2017. With the fall in markets, some of the best and most highly paid technical services teams from FUA/FUM investment management and platform businesses, were either dissolved, dismantled or heavily reduced. This has led to a significant amount of technical knowledge, relied upon regularly by financial advisers, disappearing.
To fill this void Padua recently released over 880 technical strategies and almost 2,000 variations into our Recommend software. Each month we’re capturing data on what strategies advisers are recommending and are benchmarking this data at the adviser, firm and licensee levels. This data is also being used to determine the most popular recommendations, as well as understanding the strategies that aren’t being recommended and trying to work out why.
Maximising value-creation for advised clients
Maximising value for advised clients through data involves several practical steps. Advisers must focus on leveraging data to enhance the quality, relevance, and efficiency of their services.
One practical step is to implement a comprehensive data management strategy. We discussed this earlier in relation to your fact-find and CRM data. This includes regular data collection, cleansing, validation, integration, and analysis. By maintaining a clean and integrated data set, advisers can ensure they have access to accurate and relevant client information at all times. Another step is to use data to personalise advice. Personalisation involves tailoring recommendations based on the client's unique circumstances and preferences. This can be achieved by using data analytics to identify client-specific needs, goals, and risk tolerance. Personalised advice not only enhances the relevance of the recommendations but also strengthens client relationships and trust.Advisers should also leverage data to improve client engagement. This can be done by providing clients with regular updates, insights, and reports based on their data. For instance, advisers can use data visualisation tools to present complex information in an easy-to-understand format, helping clients make informed decisions. Additionally, interactive tools and platforms that allow clients to explore their data and scenarios can enhance their engagement and satisfaction.
Lastly, advisers should continuously educate themselves on the latest data trends, tools, and technologies. The field of data analytics is constantly evolving, and staying updated on the latest developments can help advisers leverage new opportunities and stay ahead of the competition. There is no doubt that data is indeed the new oil, offering immense potential to revolutionise the financial advice profession. However, like oil, its true value can only be unlocked through proper understanding, management, and utilisation. By identifying and bridging data gaps, mitigating risks, leveraging data-driven decision making, and maximising value for clients, advisers can harness the power of data to transform their practices and deliver superior outcomes for their clients. It's time for financial advisers to move to 'Texas'—to embrace data wholeheartedly and lead the way in the data-driven future of financial advice.
