“Don’t Get Creepy”: Privacy in Wealth Management & Emerging Technology Trends

“Where am I to go now that I’ve gone too far?”

— Lyrics from Twilight Zone by Golden Earringemerging technology trends

There is a story that is now infamous among statisticians and big data analysts about how retailing giant Target was able to figure out which of their female customers were pregnant solely based on their shopping habits.  They used this data to send out coupons for baby-related products during what they calculated to be the womens’ second trimester, which would give them a jump on other retails who had to wait until the birth announcement to barrage them with advertisements.

What turned this story from calculating to creepy was their targeting of a high school aged girl to receive mailers stuffed with coupons for baby clothes and cribs. They girl’s father angrily confronted the local store manager and accused Target trying to encourage his daughter to become pregnant.

Shortly afterwards, the father called the manager back and apologized after he spoke to his daughter and discovered that she actually was pregnant and due in just a few months.

Similarly events are occurring in wealth management according to Anton Honikman, CEO of San Francisco-based technology provider MyVest. He had a meeting with a vendor of artificial intelligence solutions who had developed software that could learn intimate details about investors by analyzing their web browsing and social media feeds.

When he mentioned this to an RIA they did not respond in the way Honikman had come to expect when discussing technology innovations. “Get them as far away from us as humanly possible,” the advisor demanded.

They explained, “I’ll lose my customers if I’m shown to be using technology that intrudes on their privacy, and that will erode trust.”

Honikman shared his story as the moderator of a panel discussion called New Rules of Engagement: The Digital Service Model at a recent Money Management Institute conference.

The recent Facebook-Cambridge Analytica data scandal highlights a problem that is built into the DNA of many social media and consumer-oriented Internet firms: their business models depend on exploiting customer data.

Google, Twitter, and Facebook all make money by, among other things, harvesting your data and selling it to advertisers and app developers. Stopping those buyers from handing your data off to third parties with unknown motives may be impossible in many cases.

The scandal has done immense damage to Facebook’s brand and their efforts are already under way to restore public trust in their commitment to privacy and data protection. So what can our industry learn from all this?

Wealth management firms must be careful when presenting the results of big data analysis, asserted Tina Hurley, Managing Director of Individual Advice & Planning Solutions at TIAA. There’s a fine line between leveraging technology to build an emotional experience and causing the opposite effect by appearing to betray their trust, she elaborated.

Anonymized peer analysis reports can support directional conversations with clients, noted Charles Smith, Executive Director, Wealth & Asset Management Advisory, Ernst & Young. They are based on a lot of intimate data, but avoid encroaching into the creepy privacy space, he added.

Advisors can compare a client’s retirement readiness versus people in the same demographic, which can be more powerful than simply showing them a deficiency against their own goals.  A big red flag displayed next to median values for people just like you can be quite motivating, Smith professed.

Influencing Behavioral Biases

Can technology make it easier for people to avoid their behavioral biases?

It is a complex dilemma, says Daniel Read of the Behavioural Science Group at Warwick Business School in the UK. “Behavioural economics is a way of looking at why people don’t make the decisions that would be best for them. There has to be some prior determination that this is the right thing to do. There’s a sea of moral dilemmas.”emerging technology trends

Oftentimes the right thing to do goes against human nature. It is difficult for most people to think in any increments of time into the future, Hurley noted. The most important role that the advisor plays in this new world is providing the behavioral coaching element and helping clients avoid becoming their own worst enemies, she mused.

Advisors have to be bold and stick to their convictions when working with clients who may not want to be told about sticking to a budget or saving for retirement that could be decades away, explained Tricia Rothschild, Chief Product Officer, Morningstar.

Why develop all of these alerts and messages to encourage clients to do the right thing?  They’re coming to us to be pointed in the right direction, not just to follow their preferences, Rothschild asserted.

There’s a lot of room for improvement in how investors react to the advice that they’re given, Hurley pointed out.  Whether that’s because their advisors haven’t given them good advice or because they just haven’t followed it is unclear, she stated.

Data Is The New Oil

TIAA has been investing in their financial wellness assets and working to deploy them out into the marketplace through financial planning, Hurley stated.  But how can you aggregate data in a way that’s not creepy, but is meaningful, and gives people some other type of benchmark?emerging technology trends

Avoiding that creepy feeling while still collecting the necessary data to drive sales, marketing and AI processing will be an important goal for firms to maintain their relationship with clients as well as their trust, Rothschild warned.  Financial institutions must keep the customer’s control over their data front and center to maintain the human aspect.

People don’t know how valuable their personal data is, Rothschild added. If there was an active marketplace for that information where you could check the value, that might make everyone more cognizant of how it is being used, she noted.

Rothschild referenced a recent Economist article called, Data is the New Oil:

Internet companies’ control of data gives them enormous power. Old ways of thinking about competition, devised in the era of oil, look outdated in what has come to be called the “data economy” (see Briefing). A new approach is needed.

When we access free services from companies such as Facebook or Google, we are the product, Rothschild cautioned. But we don’t necessarily know that, so we don’t know how to price our personal data, but we should. Wealth management firms could address this issue to ensure a win-win scenario.

Data is not only valuable to consumers, but extraordinarily so to the companies doing the gathering and in more ways than one.

Internet-based consumer giants have access to vast amounts of data that spans almost the entire economy. They leverage this to create a monitoring system to protect them from being surprised by innovative startups or rivals launching new products.

As noted in the Economist article:

Google can see what people search for, Facebook what they share, Amazon what they buy.

They have a “God’s eye view” of activities in their own markets and beyond. They can see when a new product or service gains traction, allowing them to copy it or simply buy the upstart before it becomes too great a threat. Many think Facebook’s $22bn purchase in 2014 of WhatsApp, a messaging app with fewer than 60 employees, falls into this category of “shoot-out acquisitions” that eliminate potential rivals. By providing barriers to entry and early-warning systems, data can stifle competition.

A number of startups are attempting to leverage blockchain technology to help consumers take control of and monetize their own personal data.  A company called DataWallet raised $40 million to build out such a data exchange to connect individuals and companies looking for access to their personal information.

Datawallet would not only target social media firms to enhance their advertising, but their solution may even drive down auto insurance rates as it could dramatically improve insurers’ ability to assess risk by accessing specific personal data that could move them out of penalized demographic categories.

Tech’s Impact on Difference Wealth Segments

Research from Ernst & Young shows that over 70% of high net worth investors are okay with robo-advisors, reported Smith.  But, how the technology is deployed as a lot to do with how customers interact with it.  Most HNW clients will do some online self-service, like checking their performance.  But for UHNW, if they’ve got, say, $25 million, they need more than just a single person providing advice, they expect a team, he stressed.emerging technology trends

There’s often a trust officer involved and probably a planner as well, plus a generational psychologist and a portfolio manager, of course, Smith noted. The UHNW conversation is still too complex at this point to maintain solely through digital channels, he asserted.

Hurley wondered how much of the HNW segment will actually adopt the new technology. How far will they go online? For example, would they be comfortable with meeting their advisor only via video conference? TIAA has positioned themselves to be able to offer both, but will always default to the highest-touch option, she insisted.

Rothschild envisioned a long tail of mass affluent investors with a fairly predictable, replicable, scalable, trustworthy and high-quality, but ultimately lower-cost business model.

“Well, which investor are you talking about?” she asked. The needs are different, the service model is different, and obviously the complexity is different.

New technologies will facilitate more proactive client interactions, Smith emphasized. If an account’s direct deposit stops suddenly, that could indicate the client lost their job and the advisor should call them to check in. This requires a different level of sophistication as well as access to the data to both notice the change and alert the advisor.

Data Aggregation Blockade

Holistic wealth management could be one of the most impactful changes in our industry, if data aggregation technology continues to expand and customer data is more easily accessible, Hurley proposed.

Once you can see a client’s entire financial life and history, how does that impact the share of wallet conversations that an advisor has with them?  How to ensure that she is still working in the best interests of the customer? questioned Anton.

There are many entrenched interests that would prefer that customer data is not readily available to advisors or other interested parties because the financial institutions want to control it, Hurley cautioned.

In 2017, there were reports of an increase in banks intentionally blocking customer-approved requests from third party fintech firms for access to their data.emerging technology trends

Financial institutions are actively working to dampen competition by limiting data sharing, according to Jason Furman, a professor at Harvard’s Kennedy School. When consumers don’t own their own data and banks are interfering in data sharing, this hurts innovation and wage growth, said Furman, former chair of the President’s Council of Economic Affairs.

In the US, consumer data sharing is part of the Dodd-Frank law, which some banks believe they can ignore or at least slow-walk their compliance.  The European Union has their own version called the Second Payment Services Directive (PSD2), which went into effect this past January.

The CEO of Norway’s DNB bank, Rune Bjerke, understands the impending threat from this law comes not only from other banks:

“It is becoming a global competition, with Facebook, Google and Amazon as well as smaller fintechs competing with bits and pieces of the banking industry,” Mr Bjerke says. “With PSD2 we will be attacked even more by these fintechs and international players.”

The Advisors of Tomorrow

There will be fewer advisors in the industry over the next five years, Smith prophesied.  Advances in technology will allow the remaining advisors to support more clients, which will be crucial to mass affluent client bases where fee compression will hit the hardest.emerging technology trends

Commissioned-based advisors are going to be left behind since they will have the hardest time justifying their value, Rothschild warned.  Those advisors that realize their role is more of a financial life coach and shape their client conversations around how they can guide clients towards the right decisions will be most successful, she believes.

Advisors of the future will be more focused on building stronger personal relationships with their clients, Hurley stated.  A good friend of hers changed careers from marketing to financial advisor when she was 45 because she wanted to work with people who needed good financial advice. She quit her high-paying corporate job because her motivation in life changed dramatically.

We’re seeing more internal paths to the financial advisor role at firms as opposed to external recruiting from competitors, Smith reported.  Financial institutions are promoting from within by selecting promising candidates in operations or customer support and grooming them to move into traditional advisory practices, or depending on their personality and people skills, into call centers as part of hybrid advice offerings.

How to Disrupt Yourself

How can financial institutions with large legacy business stay ahead of the technology curve and avoid disruption? Or better yet, how can they disrupt themselves before a startup or competitor does it to them?

What firms should not do is try to integrate potentially disruptive technology into their legacy business models, Smith warned.  For example, when launching a new robo-advisor channel for small accounts, it’s recommended to design it as a separate product with it’s own channel and marketing rather than attempting to train advisors to funnel their accounts into it.

This short-term outlook is rarely successful, Smith explained. Building a new business with it’s own tools and technology to run in parallel and then stand it up on its own when it is ready greatly increases your probability of success.

Large firms have many internal roadblocks that spring up if you announce the new initiative too soon, Rothschild noted.  People get in the way if you talk a lot about it before it’s ready.

BlackRock built out an internal data utility as a separate business and then connected it later once it was up and running and it’s value added would be easily demonstrable to naysayers. It took about a year and a half to convince people of the power of the common utility and work around potential disruptive elements in the firm, Rothschild advised.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com