“You have to have centralized data that can feed all of your systems simultaneously so that there’s one single source of truth,” says Zuczek. “If you’re not doing that, you have a big problem on your hands.”
The bigger and more complex your firm is, the bigger and more complex your technology stack is going to be, says Zuczek, and the more difficult it will become to untangle all of the isolated and potentially conflicted sources of data.
Whose Data?
After firms establish sound data practices, they still have to untangle questions about who can claim the data they collect. Most digital-native businesses treat data as one of their products—mega-cap technology giants Google, Facebook and Amazon were built as data-centric businesses and treat the information they collect as if it were their own.
However, financial advisors themselves might need to consider whether much of the data they collect and store is actually owned by their clients—after all, some of the financial and demographic figures collected by the wealth management industry involve intimate and closely kept client information. Any breach or unintentional exposure of it could cause great harm to those clients.
Yet thus far, the industry hasn’t treated data that way, says Zuczek. For example, when advisors move from firm to firm, client data doesn’t go with them. It’s kept by the former firms as if the data belonged to them.
“The investor owns the data. It’s all theirs,” says Zuczek. “It becomes the responsibility of the firm that is managing that data to conduct oversight of that data and make sure things are being presented accurately and in line with regulatory requirements. The hierarchy of data ownership in wealth management has the investor at the top, then the advisor, then the broker-dealer and then the custodian.”
The Data Cycle
Johnstone and Practifi define a seven-step cycle of data management: capture, validate, process, analyze, store, maintain and archive.
The way it’s captured is the foundation of good data, says Johnstone—what firms collect should be defined by the type of client experience they want to create. Resources should not be spent collecting and storing extraneous pieces of information about clients.
Validation is the simple process of making sure the data is accurate as it is being recorded, and then periodically over time in an ongoing process. The third step—processing—structures and organizes the data so it can be used and shared in different pieces of technology.
The analysis step involves drawing insights from the data to improve the business. This creates the biggest payoff for firms, but cannot be fully achieved until the data is captured, validated and processed.
Firms have two main options for data storage: in servers kept on the premises at their firms or in the cloud at outside data storage centers. Zuczek is a proponent of cloud solutions.
“Most importantly, it’s always accessible anywhere no matter what happens, with major backups,” he says. “On-premises stuff goes down too easily. It’s just better in the cloud, and for new advisors, that means there’s less junk you need to have and less space you need to take up. Using the cloud gets you closer to having one centralized source of truth, as no matter where you are or what device you are using, the information is always coming from the same place.”
Data maintenance involves periodically and regularly updating data, since using outdated information to make decisions will eventually lead you to make poor ones.
At some point, data will exceed its useful life. Clients will die or move to other advisors, markets will change, or some information will be retired from active service—but it shouldn’t be deleted entirely.