Business Intelligence Metrics

Is it possible for computers to completely take the place of an advisor's ability to run a financial plan? Does that mean the advisors themselves could be replaced with a series of automated digital interactions??

I believe the answer to these questions are yes and yes for way too many financial professionals who lack depth in their services.? However, I also believe advisors can use technology like financial planning software to their advantage to differentiate the clients experience with their plan.??

This series of posts detail the many ways planning technology could be innovated to enrich the services of the average advisor, not replace them.? Financial Planning Software has only just begun to show its true value.

Business Intelligence Metrics

Any firm that provides the service of a financial plan should want to quantify their financial planning processes and use that information to gain insights which lead to improvements.? Financial planning software is the hub of both the advisor and client engagements, but it has failed to deliver a practical way for firms to organize data around the sum of all clients' experiences.? There are many definitions, but the term Business Intelligence (BI) is a bit amorphous.? It's the critical quantitative information locked up in the planning experience that could navigate a firm towards upgrading one or all segments of the financial planning process.? For the purposes of this article, the numbers themselves that can act as pieces of business intelligence will be referred to as Metrics.? Financial Planning Software has only just begun to innovate on business intelligence.? There’s still a lot to do, but it will only happen when advisors and institutions have an inkling of what's possible and demand more.??

Artificial Intelligence (AI) is very much a term still in the making.? I started to hear it at industry conferences over a decade ago where advisors were trying to gain even the most basic understanding of what it is and how it could be used in our industry.? Fast forward to today and we find these questions still mostly unanswered.? For any discussion around consumer facing planning software or one that makes recommendations for advisors, the term AI is somehow always touching the conversation.??

Admittedly, I don’t really understand AI, but I do know that my Organic Intelligence can also make inferences.? However, as powerful as the human mind is, we need information presented in a way that translates.? This means to organize data in a visual way that allows us to recognize patterns and make judgements.? As a frame of reference, think about modern Customer Relationship Management (CRM) software.? Many of the larger players that work in all industries have gotten very good at allowing users to create many types of visual graphs with just about any set of data, whether it's a standard field or custom.

Why isn't the problem solved by the existence of CRM's?

The first is that despite the obvious advantages of integrations, our industry is still immature in many ways.? The industry specific CRMs that do a great job aggressively integrating haven’t built out visual data features the way the large non-industry specific ones have.? On the other hand, the non-industry specific CRMs are not as aggressive when integrating, meaning they check a box when integrating investments, but fail to bring over all the other pieces of information that make up a financial plan, such as goals, income, debts, etc.? However, this is the easiest fix as CRMs expand integrations and data organization capabilities concurrently.

The second problem is the most difficult one for the industry to rectify.? We know that CRM’s are a great tool for advisors and firms to organize BI Metrics for useful analysis.? However there’s one small problem.? The data any BI Analysis tool would need to do its job is locked up tighter than a snare drum in Financial Planning Software.? Of course, it's traditional for planning software to send some information to the CRM pertaining to results.? Most of the time it's just one number, Probability of Success.? Other information is possible, but the likelihood of that information matching the depth needed is unlikely.??

Integration alone can’t help

To solve the problem of insufficient information getting to the firms about the planning process, we’ll need to get a handle on what Business Intelligence Metrics could be.? Let's begin by discussing what is not realistic.? There is a fundamental problem with getting the information and sending it over to some other tool.? We must recognize how many numbers are in a financial plan and it doesn’t make sense to send over every single number.? When a plan is run, it’s saving the planning elements (values and such) that made up the plan and then every time you see results, it's re-running.? To save every number to every year would be cost prohibitive.? The same is true for CRMs.??

Additionally, what are they going to do with data once it's there?? This is why planning software must take the lead in converting results into usable numbers.? The CRM lacks the knowledge of what to do with full plan results and it certainly doesn't want the storage costs or band-width issues that come with taking in much more data than what is needed to do the job.? Therefore, it's up to the Financial Planning Software to create more Metrics than probability of success.? What kind of other metrics could be created that not only allow our clients more ways of understanding results, but give us more data points to send over to the BI Analysis tool?

Plan Results

The plan activity that makes the most sense to quantify is plan results, mainly because these results are already numbers.? We just need to figure out what to do with them.? Some obvious questions are: How are expenses typically funded under certain demographics?? When does unhealthy start to happen?? How is the health of the plan compared to aggressiveness of goal discovery???

When speaking of measuring engagement, we’re using a lot of common sense that a CRM could apply to most technologies, whether in the financial services space or not.? Meaning the measure of logging in is similar in planning software as it is for some other type of technology.? However, when dealing with Plan results, the planning software must take the lead in providing usable results to the BI tool.? Referring back to our problem, the planning software just can’t send over all numbers.? It's too expensive and the CRM wouldn’t know what to do with them if it wasn't, so we need to make up metrics that have already applied some logic to extrapolating results.

This is where Financial Ratio Analysis (FRA) comes into play.? Feel free to access my previous post on “Financial Health Analysis” to learn more about the future of ratios in planning software.??

FRA bridges the gaps between the plan results and understanding them because it leans on decades of academic research that is still going on today.? There has already been a lot of thought put into their interpretation and benchmarks.? Lets use an easy one as an example:? Emergency Fund Ratio, which divides liquid assets by expenses.? The result is the number of months our expenses will get paid by assets that are easy to convert to cash.? That one is obvious, but what about the Front-End Ratio or the Solvency Ratio, Current Ratio or Inflation Protection Ratio.? There are tons of them.? The point is that the process of converting plan results into measurables that highlight unhealthy areas could be the starting point needed for any organization to measure the success of any area of the planning process.? Then, we can improve said area.

Measuring Engagement

It makes a lot of sense to somehow quantitatively measure advisor and client engagement.? A judgment of active participation could be converted into a single score, and this idea could be extended to segments of the planning process, such as Data Gathering and how they interacted with plan suggestions.? What gets a client the most engaged?? It's a critical question and we might have an opportunity to actually answer in a useful way by visually graphing aspects of engagement.??

Another critical question is how advisors build plans?? An institution should be knowledgeable about how long it takes to perform the steps of the process.? Even though we’re talking about creating measurements because we want to look at the big picture, we can’t even look at the individual picture at the moment in some areas. ? Planning tools don’t bother to know thine own selves.? Mostly what they know of results at the end of the day is a Monte Carlo and nothing more.? There’s a lot of great information being created with the plan, but it disappears after its run and the advisor/client leaves the page.? The software is not collecting and storing information to be organized and sent anywhere else.? Taking a closer look at how advisors create plans could signal to some companies that they need a Centralized Planning Group

Once a plan is created, how is it executed?? How long does it take?? Are some suggestions more of a bottleneck to the process than others?? Which ones get pushback?? Do we see higher activity from clients with a different process?? How do results differ between advisors that dive deeper in discovery of goals than others?? How can a firm know the answers to all of these questions?? The answer is that right now, they don’t.

Conclusion

I have hope for the future of planning software and its relationship to useful metrics.? All the information needed to make better decisions is right there in the planning software and always has been.? It's only missing the motivation from advisors to demand it.? This is something every firm should be asking for.? Whether we are talking about a one-person shop or a very large institution, there are many obvious reasons to quantify the planning process so as to improve it.? Advisors owe it to themselves as well as their clients to try.