How often do you hear a revelatory statistic only to find out that the survey used to determine that statistic only asked 100 people. My first question is always: “What did they ask to draw these conclusions”?
Maybe I’m too cynical, but without the survey questions how can I trust that there wasn’t an inherent bias in the way the questions were phrased? The problem with surveys is that it is very easy to construct them to draw predetermined conclusions.
A much better way to analyse trends, patterns, and associations is to use big data. Banks, supermarkets, airlines, global chains, and many other businesses subscribe to big data companies to analyse thousands, if not millions of transactions to determine the buying patterns of consumers. This influences their entire marketing and product proposition strategies, and in the case of banks, is accurate enough to detect fraudulent behaviour.
Big data is broadly defined by the three V’s: Volume, Velocity, and Variety which refers to the amount of data, the rate at which it is received, and the range of different data formats. The aim is to have a high volume of frequently updated and varied data from which the most reliable results can be extrapolated.
There are a number of key benefits that the financial services industry can derive from analysis of data. The obvious one is customer insight. Every business needs to understand its customers, and products and services need to be continually refined and improved to retain value. An analysis of buying and selling patterns is key to identifying trends that are both beneficial, and potentially harmful.
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A rise in the number of higher risk investments being bought by customers at, or approaching retirement may cause the FCA to look more closely at that target market for example. Essentially, it will help everyone involved understand that the right solutions are being used by the customer, and that they were chosen for reasons that were relevant to achieving a particular goal. Or to at least make the journey more comfortable!
Another benefit is innovation. It might be hard to see where that may come from given that most financial products are constructed to meet tax legislation, but it is still possible to be creative in solving a particular problem.
Annuities had largely been forgotten about during the low interest rate period following 2008 but have now started to see a resurgence as yields have crept up and are being used more as an underpin for essential income. We are also seeing a trend towards With Profit type investments, the premise of which is still attractive for most investors.
Then there is market intelligence. If I know who my customers are likely to be, and I have a product that is attractive to them that is almost a guarantee of success. I have lost count of the amount of times I have listened to a very enthusiastic sales pitch for something I have no interest in. Market intel is vital to an effective sales process. An informed, targeted approach saves both parties time and is much more likely to result in a happy relationship.
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How data is used is very important, and there is significant and powerful legislation protecting the rights of an individual’s data. The scenarios I cover here relate to how businesses can work together to ensure that the outcomes for the end customer are optimised. FCA Guidance on Consumer Duty applies across the whole distribution chain, which means all firms involved in the manufacture, provision, sale, or administration of a service to the retail customer. They are tasked with sharing information that facilitates that goal, and to act where information may suggest customer detriment.
In my role as head of research at Dynamic Planner, I get to see a lot of data. I can see that by far the most common customer risk profiles of the two million investors we have profiled are 5 and 6, and I can also see how their age, wealth, gender, or sustainability preferences affect that risk.
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The data also shows that advisers like diversity in all things so they will often recommend multiple funds, even when those funds are multi-asset. I can look more deeply and see that there is a growing trend in the use of Risk Targeted funds, and that funds are often selected on their rating, availability on platform, and OCF.
Big data has the power to provide both a fascinating snapshot and look further into the different layers and components of any industry, whether it be for one of the big supermarkets or banks, or a SaaS business like us.
The really exciting aspect is what you then do with that data, and how it is applied back to that industry in a positive way to deliver benefits to the very people that have provided it – for us – the financial planning and asset management community and their customers.
Jason Dewar is head of research at Dynamic Planner
