Smarter digital financial planning: How new analytics tools can help advisors

Financial Services Writer

Many Gen Xers and millennials grew up online and are accustomed to buying plane tickets or shoes with the click of a mouse. Financial advisors and wealth management firms must raise their game to meet clients' demands using actionable data analytics. Fortunately, emerging technologies can help firms engage in more sophisticated digital financial planning.

Dig up new insights into your clients

The best financial advisors are intimately familiar with their individual clients' long-term goals. But new digital financial planning tools can help better sort through and organize that knowledge base, allowing for more efficient marketing to your existing clients. For example, advanced analytics software can review customers' current portfolios and automatically categorize them by risk tolerance. This allows you to pinpoint your targeting for a new fund offering.

Risk tolerance is far from the only characteristic that can be tracked using advanced analytics. By tracking data from myriad sources, you can identify different clusters of clients, which helps you target marketing and incentives across the board. That's crucial to driving asset growth as your client base expands, points out financial advisor and consultant Michael Kitces. As he writes in a blog post, "Most advisory firms accumulate clients of all different types in the early years as they grow — at some point it becomes necessary as a business to differentiate amongst those clients, to better align the cost and services provided to clients, based on the value that the client brings to the firm."

Predictive analytics can drive financial planning planning software has been around for decades, but that doesn't mean it's always proved useful to financial advisors. Cookie-cutter projections, which don't take into account the impact of important life events on a client's financial position, can impede rather than aid advisors. However, more sophisticated predictive analytics techniques are emerging. These can anticipate a big shift in a client's circumstances, such as marriage, parenthood or impending retirement, and predict who among your client base is most likely to experience these events. With this information, advisors can fine-tune their suggestions and anticipate their clients' needs. It's important to note, however, that successful use of predictive analytics requires a deep understanding of the data a firm is putting into the system.

Cut through clutter with data visualization

Mass-market products have offered tools to help average consumers track their finances for years. More recently, back- and front-end analytics products have emerged, capable of organizing and simplifying the complicated portfolios of high net-worth clients. By feeding many accounts into a single dashboard, a clear overview of a family's financial position can be quickly generated.

According to a 2015 study by Spectrum Group, summarized by Think Advisor, 58 percent of high-net-worth investors have switched financial advisors at least once. The most common reason for doing so was lack of proactive contact; 24 percent of respondents cited an advisor's failure to reach out and keep them updated as what prompted them to abandon ship. Easily accessible account overviews and health statements can benefit client retention, providing reassurance and helping build trust.

Analytics isn't just a tool anymore; it's an edge. The cornerstone of an advisor-client relationship has always been, and always will be, trust. But sophisticated advisors are perpetually trying to build on that foundation. Data visualization, sentiment analysis and analytics are just three of the components in an ever-expanding toolbox being opened to 21st-century businesses. Wealth managers need to take a serious look at its contents in order to maintain their mastery.

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