Advisors who aren't using advanced analytics in the brave new world of wealth management are going to be left behind, according to the Boston Consulting Group's 2018 Global Wealth Report.

Receiving customized attention will be the new normal and personalizing clients' experience by leveraging data will be the key to staying competitive, the report says.

This is "a quantum leap forward from traditional approaches," according to the report, and firms should be prepared to create personalized experiences based on each client's needs, preferences, context and behavior.

RIAs face a particularly hard challenge when it comes to data, says BCG senior partner Brent Beardsley.

"Even large RIAs won’t have the resources that [large banks and wirehouses] will have around advanced analytics," Beardsley says. In addition, compared to those competitors that have broader relationships with their clients in the form of bank accounts or credit cards, RIAs have a "relative lack of data on their clients," he notes.

However, the custodians such as Schwab, Fidelity, TD Ameritrade and Pershing "are all developing capability around advanced analytics to serve RIAs," Beardsley says. "They are expanding their offerings to enable RIAs to compete effectively."

Consequently, advisors should embrace the custodian's analytical offering, Beardsley counsels. "The largest RIAs should be at an advantage here," he says.
The rewards for using advance analytics should be ample.

Top-line growth can increase by 15% to 30% and firms can boost efficiency 10% to 15%, according to the report. What's more, advanced analytics "has the power to improve net margins on assets under management by six to 12 basis points," says BCG managing director Anna Zakrzewski.

How can advisory firms best leverage data and advanced analytics to improve efficiency and expand margins?

  • Upgrade operational efficiency.

Predictive analytics using "intelligent triage" and elimination of manual work from the review of exceptions and errors during back office processing in areas including trades, account transfers and fraud prevention can yield a cost reduction of 20% to 40%, according to the BCG report.

  • Lower human resources costs.

By incorporating novel data sets and applying advanced analytics before and after hiring, wealth mangers can increase their efficiency in managing talent pipelines and lower HR costs by 5% to 15%.

  • Sharpen demand management.

Anticipating and heading off service requests and inquiries before they happen, wealth managers can shrink related service costs by 10% to 20%.

  • Implement know-your-client programs.

By using advanced analytics to meet regulatory requirements, firms can reduce the need for paperwork, lower the burden of initial client onboarding and reduce related service costs by 5% to 10%, the report estimates.

Charles Paikert

Charles Paikert

Charles Paikert is a senior editor at Financial Planning. Follow him on Twitter at @paikert.