Big Opportunities in Big Data

Danielle Fava opens up a window into how big data is changing our lives and our practices.

When Danielle Fava gave her Insider’s Forum keynote presentation about “big data” issues in the profession, she had a lot on her plate.  Fava is Sr. Product Manager at TD Ameritrade Institutional’s iRebal and Veo software, playing a key role in introducing two big data initiatives to advisor desktops.  The upcoming TD Ameritrade iRebal Model Market Center will allow advisors and portfolio management firms to “publish” their portfolios, so that other advisors can “subscribe” to them.  It will be a way for the entire profession to compare notes on their portfolio management activities, and could transform the value proposition of mutual funds from managing every customer’s assets in one big pool to publishing the research and buy/sell recommendations to investors’ advisors, who can then provide a customized tax-aware overlay that could add up to 1% of advisor alpha a year.

Fava is also deeply involved in building out something called Veo Data Analytics, which is collecting a massive amount of data on 5,000 advisory firms that custody at TD Ameritrade Institutional.  Advisors will be able to compare their dollar inflows and outflows with their peers, compare their staff salaries position-by-position with those of other firms, compare their profitability, growth rates, line item expenditures and productivity, not only with their peers, but also with their own historical metrics to see where they’re improving or getting snagged.

Fava spent about five minutes of her presentation talking about those exciting big data developments, and the remaining 55 minutes exploring a variety of other ways that big data is crashing into our lives from a variety of directions.

Take the most recent Presidential election, for example.  Fava pointedly did not take any political position, but she said that a little-known company called Cambridge Analytica played a huge, under-reported role in the election’s outcome.   

“The company had created a digital version of psychometrics,” Fava told the audience, and explained that psychometrics is a personality assessment which measures a person’s openness, conscientiousness, extroversion, agreeableness and neuroticism. “The concept was developed in the 1980s,” said Fava.  “Back then the only way you could take this assessment was by filling out a very long arduous questionnaire.  It is very accurate, but you need to have the time, the interest and to be in the right place to be able to fill out the assessment.”

No longer.  Fava said that the Cambridge Analytica researchers posted the questionnaire on the Facebook social media site, and to their surprise, millions of people filled it out.  Armed with this data, the researchers were able to correlate the results with 5,000 pieces of information that Facebook collects about each participant, including what they “like.”  Fava said that correlating psychometric characteristics with “likes” produces a surprisingly accurate picture of the 200 million people who currently have their own Facebook pages.

“If you have clicked 70 “likes,” they know more about you than what your friends know,” said Fava.  “More than 150 “likes,” and they know more about you than your parents know.  If they get more than 300, they know more about you than your spouse.  And if they get more than 500, they know more about you than you know about yourself.”

Armed with this information, company researchers can predict your behavior in certain situations better than what you might predict yourself.

So?  So Cambridge Analytica used this information to help the Brexit supporters create targeted advertisements on social media, which ultimately led to a surprise victory for those who wanted Britain to exit the European Union.  “Donald Trump knew about this, so he went out and hired Cambridge Analytica,” said Fava.  “Then he hired a marketing company to create 100,000 different ads, targeted toward peoples’ beliefs and fears, which went out on Facebook ads that only a specific list of people see.”

In one of the simpler examples, Cambridge Analytica targeted women whose “likes” indicated that they were conscientious, and whose posts indicated that the women had recently had a baby either in their immediate family or in their circle of friends.  The targeted social media advertisement for these women would, every day leading up to the election, remind them of Hillary Clinton’s support for partial birth abortions.

“This was not designed to turn Democratic voters into voters for the Trump campaign,” said Fava.  “The goal was to keep Democratic voters home on election day.  This marketing tactic, combined with the mainstream media telling people that Hillary was going to win by a landslide, would cause a number of those people, who received the targeted ads, to keep their conscience clear and not vote.  They reasoned that Hillary was going to win anyway,” Fava continued.  “So they could save their conscience by not voting.”  The result: suppressed Democratic turnout in certain key states, resulting in a very narrow Republican victory.

The key point being illustrated here is that you and I and everyone else are now subject to highly-targeted, highly-personal marketing messages from marketing firms that now know more than we do about our own inclinations and preferences.  The audience at the conference was shocked.  Welcome to the world of big data.

Fava was just getting started.  She, herself, uses a phone app called Waze, whose ostensible mission is to collect information from all the other drivers on the highway near you to help you avoid traffic and get from here to there more quickly.  But Waze is also watching you.

“When I go to work every day, I buy a cup of coffee at Dunkin Donuts,” Fava told the audience.  “When I go on a long road trip, somewhere other than work, Waze will tell me when I’m passing a Dunkin Donuts.  It is learning my behavior,” she said.  “I don’t mind; in fact, I love it.  I think this kind of data learning is going to enhance our lives.”

Meanwhile, she said, car insurance companies will be able to use Waze to determine your driving habits, and price insurance accordingly.  “If you’re a high risk-taker, then you would be charged more than a low risk-taker,” Fava said.

How does all this relate to managing—or marketing—a financial planning practice?  Veo Data Analytics is a way to gamify the management of a planning practice.  Facebook’s micro-targeted advertising is a way to focus your marketing efforts on a target niche more specifically than you could probably define it yourself.

“You can create an ad on Facebook and say ‘I want to target people living within a 20-mile radius of Atlanta, I want them to have a net worth over $500,000, and I want them to be between the ages of 50 and 60,’” said Fava.  “That search will yield 2,600 people today.  I know,” she added, “because I’ve done it.”

Let’s say you want to have an advertisement for your planning services show up on the Facebook pages of that group of 2,600 individuals.  How much would that cost?  What would you guess?

Chances are you just guessed wrong.  Fava said that it would cost you $35 a week to reach that target audience.

But suppose you want to go deeper, and find clients who are like your own clients—a “lookalike” audience in the parlance of social media marketing.  “To find a lookalike audience,” said Fava, “you load the email addresses of your current clients into Facebook and say: Facebook, create a lookalike audience for me.”  Facebook will look at the 5,000 or so pieces of data it has on the people you’ve loaded into the system, and compare them with every single Facebook member.  You can add demographics criteria like net worth and a region.

The result is your new target audience, defined as people who are fundamentally, psychographically similar to the clients you currently work with.  “You may not even know that your typical client is a 50-year-old divorcee who watches the Big Bang Theory religiously,” Fava told the audience.  “You might not even know you have this common thread across your clients.  But Facebook knows it.  If you load your list of clients, Facebook will create a lookalike audience for you, you can target just people who have those same characteristics, and it doesn’t cost any more than the first price I told you.”

But isn’t that compromising the privacy of your clients?  In most cases, said Fava, Facebook already has those email addresses.  But in any case, Facebook doesn’t save your client email data into its system.  It simply uses it to find your target audience, and then discards it.  Later, Fava noted that you don’t need to have a Facebook profile for your business to advertise on Facebook.  Your advertisement can point to your website instead.

Are there any other ways that big data is relevant to a financial planning practice?  Fava said that it is not out of the question that you can create at least a basic financial plan armed with nothing more than a client’s phone number. 

“The data in your iPad and your phone tells me if you’re an introvert or an extravert,” she said.  “It tells me about your travel experiences, your emotional stability and the speed at which you drive your car.  It gives me strong clues about your goals, what you’ve bought and your shopping habits.  Your Google searches tell me your interests.”  Your social media accounts, meanwhile, provide net worth and marital status information, number of children and ages and (as we saw before) a lot of clues about your psychographic profile that pile up as you click on “likes.”

“You input their phone number into a computer system of the future, and the financial plan says they should open a 529 plan for their two oldest children,” said Fava.  “The youngest seems to be trending toward a scholarship.   Let’s make sure you buy pet insurance, because Golden Retrievers are more likely to have kidney issues, especially if they don’t have a very active lifestyle, which seems to be the case in your metro style of living.  Also, in your investment selection I set you up with a very conservative portfolio including a socially-aware anti-drug strategy.  I thought this appropriate given your family’s history.  Lastly, I think you need to plan for some discretionary spending in retirement to get that boat you have always wanted, similar to the one that you rented from time to time.

“All,” Fava said, “from the data inside your phone.”

Fava anticipated what actually happened; a number of audience members were, without realizing it, shaking their heads at the impossibility of it.  She said that this is perhaps the biggest takeaway from her presentation: that we are gradually becoming comfortable with concepts and technology intrusions that would have been unthinkable a few years ago—and we need to recognize this trend and start to get more comfortable, more quickly, in order to stay ahead of the trends.

Can she provide examples of this incremental shift from discomfort to comfort?  No problem.  “If I were to have told you ten years ago, I’m going on a trip and stay in a stranger’s house, not somebody I know, but I am going to pay them to stay in their bedroom, you would say, you’re crazy!” said Fava.  “Now we have Airbnb that is just that, and it’s become the single largest hotel chain in the world.

“If I were to have told my mother that I was coming home from the bar—and she asked: how are you getting home?  And I said: Mom, I’m just going to get into a stranger’s car and give him ten bucks through my phone account to drive me home.  She would say, go to your room; you are not going out; there is clearly something wrong with you.  Now we have Uber that is the single largest taxi service that the world has ever seen.”

Of course, the biggest thing financial planners have to get used to is online investment technology, the so-called Robo advisors.  “I actually think it is a great thing for the longevity of our business,” said Fava, “because it is creating financial and investment literacy for a person way earlier in their lives than ever before.”  She said that potentially millions of people with small investment balances will start out with an online investment account, while thousands of others who are embarrassed about their finances—and therefore are not likely to seek out a professional—will get their financial feet wet with a diversified robo-portfolio. 

The result?  “Clients earlier in their wealth accumulation phase are getting involved in investing,” said Fava.  “When I was young, my parents told me to put my money in a savings account that would grow with interest.  Today, people are using Wealthfront and Betterment to start with small amounts of money and potentially watch it grow with the market.  They are going to become more financially literate, and therefore more likely to walk into your office when they have complex financial needs.”

Bigger picture, just about everything around us is becoming more automated, so why should investing be any different?  But Fava is not worried about total disintermediation.  “Doctors will always be around,” she said.  “Psychotherapists will always be around.  Financial advisors and financial planners will always be around.  People want a human dimension.”