Wealth management: big data, better relationships

This is an era of fundamental challenges and opportunities for banking. We need to attract top data scientists, partner with leading players in the advanced analytics space and build a new data infrastructure able to cope with the challenge not only to manage the size of data but also its complexity, veracity and velocity of change,” says Brian Bachmann, head of perception development and centre of excellence in digital private banking at Credit Suisse.

How to collect data, how to store data, and above all how to use data – these are the questions on the mind of every private bank chief technology officer. Better data means better relationships with clients, better relationships with advisers and, indirectly, better relationships with shareholders. Yet only a handful of the large wealth managers are making strides to fully embrace the big data movement.

Where the wealth management industry seems united is in the belief that the collection and analysis of client data leads to better relationships with clients. “The wealth management industry used to rely on two pieces of client information – client demographics and investable assets. Now, however, they realize the use of knowing that the client’s mother is in an assisted living centre, or whether their daughter just graduated, or that they are concerned about Syria,” says Kendra Thompson, head of Accenture’s wealth and asset management practice in North America.

It may once have taken advisers many years to find out this information about their clients, but now they are able to use social media and the internet to bring together data. “Much of the information needed to on-board new clients is available from public sources,” says Dirk Klee, chief operating officer at UBS Wealth Management.

It leads to deeper, richer conversations with clients and more opportunities to provide better individually tailored solutions such as managing cash flow to ensure an elderly parent is taken care of, or knowing that cash flow is now freed up as a child has graduated. For years advisers have claimed that they treat each client as an individual and that they are not just putting their money into one of seven bucketed risk profiles, but with the move to more data, that claim will actually become true. Bachmann says: “This is the beginning of a new kind of wealth management, individual to each and every client’s life and goals.”

That a deeper client profile can lead to better wealth management solutions is obvious. However the use of digital customer-relationship management (CRM) tools allows the aggregation of the feedback from those solutions; that information is valuable.

“All this data on a client is well and good but its real value is when it leaves the adviser’s head and is input into a bank’s CRM platform,” says Thompson. “If thousands of advisers are now starting to input more details about their clients, alongside what investment solutions they are providing, then before long you can drill down into knowing that dentists who live in rural areas and enjoy cycling have been interested in investing in X.” That means advisers can start to make informed suggestions to clients based on a client’s peers’ decisions with greater accuracy.

It is not just personal information that is useful. Data collection on clients’ interactions with the bank outside the adviser is also providing helpful insights. Chris Randazzo, chief information officer at Morgan Stanley Global Wealth Management and Investment Management, explains: “As an organization we can learn from our clients’ activities to enhance our most popular features and to better inform our advisers. For example, the adviser could be alerted that the client ordered cheques and it could lead to a follow-up call with the client to ensure that they received the cheques. It makes the adviser more connected to the client.”

'Big change'

The big data revolution does not necessarily mean that more data is being collected on clients, but it does mean that data is being collected faster and that it is collected centrally on digital CRM platforms. That is powerful, but only if advisers are using those CRM platforms. “It’s been an opt-in tool for advisers among many firms, but it makes sense to enforce use, and that is going to be a big change for many wealth managers,” says Accenture’s Thompson.

Morgan Stanley has been a leader in upgrading its platforms to be much more user-friendly and accessible to their advisers. Last year it launched 3D Insights, which analyzes the hundreds of research reports and product information emails that advisers were receiving each day. 3D Insights ensures that advisers only receive information relevant to their clients. Morgan Stanley also launched a client reporting capability that allows advisers to customize data around clients at the touch of a button rather than having to sort data manually. It has a simple interface that advisers can navigate more easily.

“We used to give our advisers a huge amount of information, [but] our analytical platform learns over time, developing awareness of our advisers’ and clients’ priorities and preferences. [There are also] advanced analysis capabilities, which deliver customized reporting, targeted research and relevant recommendations proactively. The feedback so far has been very positive,” says Randazzo.

The client advisers’ skills and the relationship with the client is still at the core, but thanks to better data analysis and technology, this is evolving Dirk Klee, UBS Wealth Management

A by-product of getting advisers to use the digital CRM platforms is the data that can be collected on the advisers themselves. This, says Randazzo, has been pivotal in transforming the relationship between Morgan Stanley and the adviser. “In a large organization, it can be challenging to understand the manner in which each adviser operates their business. Advanced data analytics allow us to learn more about the advisers themselves. We know that our advisers need to be able to run their businesses as a business. We leverage big data to learn from our most successful advisers and develop best practices that can be shared with all advisers.”

What data has shown for example is that it is not extroverts that make the best advisers, but rather introverts, says Thompson.

Randazzo adds it is not about catching out advisers that are not performing as well as their peers. Rather it is about providing the advisers with information that can help them with their job and make them more efficient. “If you tell advisers what advisers like them are doing to make more money, they will change their behaviour automatically. You used to have to gather them together at a conference but now you can say: ‘John spends 20 minutes more than you talking to each client and he gets 45% more business.’ That is tangible and useful information,” says Thompson.

Morgan Stanley’s approach is helping to retain and recruit advisers and its reputation for caring about its advisers is being noted. “In a world of endless information, our belief is that the adviser will become even more important to our clients, to help them decipher information and to choose the right solutions to help them meet their goals. Technology is becoming increasingly important in how we make our advisers more efficient, and to maximize technology’s impact we are listening closely to the advisers themselves,” says Randazzo.

For UBS, this link between the bank, the adviser, the client and the data provided in that chain, has been the driver behind its technology investments. In 2013 UBS launched UBS Advice for its Swiss clients. “In the past, performance was highly influenced by the ability of the adviser to know what the client needs and to know how to manage that and where to put your money. It was dependent largely on the personal capabilities of the adviser. The client advisers’ skills and the relationship with the client is still at the core, but thanks to better data analysis and technology, this is evolving,” says Klee.

Tailored recommendations

Clients that choose UBS Advice receive tailored recommendations on portfolio movements based on real time strategic decisions being made at the chief investment officer level. “It’s an enormous amount of data that is analyzed to go from the CIO’s overall strategic outlook down through the thousands of funds and portfolios into the individual clients’ risk profiles to provide them with recommendations,” says Klee.

That effort is paying off, he says. “UBS Advice portfolios of clients that adhere to the recommendations are performing better than in execution only portfolios.”

At UBS, the adviser was actually the link in the chain that was breaking down. “For sure improved data and improved analytic tools – these have helped us better screen the markets from a CIO level. But the big question was how do we ensure that the team of CIOs with their investment decisions based on these analytics is really getting into the individual client portfolios? Before we worked that out client advisers would call the client saying: ‘This is what the CIO says and I’ve taken a look at your portfolio and I think this should happen.’ But that was often not consistent and the house view was becoming diluted, so the execution risk was substantial. Now we can use data and technology to help the client adviser know exactly what that individual client needs to do and we can alert them directly.”

So is UBS the opposite of Morgan Stanley in the belief that the adviser isn’t important? Klee says not. “It’s not that the adviser is not needed; far from it. We hear from clients that they want to be able to have access to information 24/7 on any device, but they do still need human interaction. It’s similar to if you have a headache – you may look up your symptoms online, but at some point you will want to see a doctor.”

Rather, Klee says, UBS Advice is about freeing up the adviser to focus on other solutions for clients, while at the same time providing the client with the most tailored and exact information they need. Accenture’s Thompson is expecting more of this direct interaction of information between bank and client, not adviser and client. It is going to be a challenge for wealth managers. “Clients want transparency and a deeper understanding which is putting pressure on firms to have a consistent message. The question is – to what degree do you provide the same insight to both client and adviser? How much do we spoon feed advisers rather than let them make their own decisions for their clients? And how do we balance access to tools for clients and advisers? These issues have to be addressed before wealth management firms start to get down to the data analytics level,” she says.

Clients will be asking – where is the firm that is going to use this data to have a better relationship with me? Kendra Thompson, Accenture

Klee believes this balance will be critical: “The best wealth manager will be the one which best manages the connection between the human touch and a hi-tech digital backend.”

An obvious issue when thinking about the amount of data now being accessed and analyzed is data storage. It is no longer a cost issue – storage is getting cheaper. What is a concern, however, is the type of storage. “There are still very few wealth managers that have done anything meaningful on the public cloud,” says Tom Gillis, chief executive of virtual software infrastructure company Bracket Computing.

His point is that until wealth managers embrace the public cloud they will not be able to process data as efficiently they could. “The public cloud can provide tens of thousands of processors on demand, which is very difficult or impossible to do in a private cloud environment.”

It is the final piece of the puzzle in wealth management he says, because processing data on the public cloud will actually lead to better investment performance: “Markets are all about processing information. It is not hard to believe that more sophisticated processing approaches yield better results around scenario and risk analysis.”

Gillis says that wealth managers have been nervous to adopt the public cloud because of security but that should no longer be a concern: “Wall Street has led the technical revolutions in data centres because it knew that more data meant better trading and more profit. The public cloud will give banks a huge leap forward – they’re just not fully willing to take it yet. They believe physical constructs to be safer – but look at the security breaches we have had there. Most major breaches have happened in data centres that are physically controlled by the customer. Software-based encryption is much more effective than physical controls and now means that the public cloud is even more secure than a private cloud. It feels like a gut-wrenching change for banks. Change of this magnitude means some employees fear they will lose their jobs. But it’s up to those at board level to really push for it and they will not regret it because their trading decisions will be better.” Banks are dipping a toe in the water. Bracket’s customers include Goldman Sachs, Wells Fargo and Blackstone.

Gillis says wealth managers that move first to the public cloud for data storage and analysis will win: “Eventually everyone will be on the public cloud and markets will just become more efficient and the edge will be gone, but there will always be winners and losers, so it pays to be a winner for as long as you can be by being a first mover.”

Thompson says that data will be the deciding factor for the fate of many wealth managers. “Wealth managers are looking at downward pressure on fees, greater competition from non-banks, disruption in their industry and clients will be asking – where is the firm that is going to use this data to have a better relationship with me?”

It is a big change for wealth managers and it will require a new mindset and a different set of skills for technology employees. As Randazzo explains: “Before you would have a data warehouse with a tool on top of it where the business could slice data. Now we employ data scientists and architects to look for patterns and to curate information in a way that provides business value. It raises the bar for technologists to understand their business – because we have to design our platforms to be tightly connected to how an adviser thinks and works.”

Randazzo says it is essential to act now: “It may seem as if big data is something that will impact the industry in the future, but it is happening now which is why it is imperative to invest.”