Gamma - The New Investment Concept!

When it comes to generating retirement income, investors arguably spend the most time and effort on selecting ‘good’ investment funds/managers—the so called alpha decision—as well as the asset allocation, or beta, decision. However, alpha and beta are just two elements of a myriad of important financial planning decisions, many of which can have a far more significant impact on retirement income. Morningstar introduced a new concept called “Gamma” designed to quantify the additional expected retirement income achieved by an individual investor from making more intelligent financial planning decisions. This is a must read for planners and for investors who want to optimize their retirement assets. This is the essence of Intelligent Investing!

Read all about it here!

CBlakely  CFP®, CTFA           01-2012

Four Key Benefits of Data Integration for Investment Advisory Firms

Investment professionals, like so many of us, often find it difficult to tell the difference between ‘information' and 'data'.  However, the business impact of new data sources available to the financial services industry make it imperative to understand the difference between these terms. Information, such as client reports, portfolio metrics, and dynamic portfolio recommendations, is the primary product produced by most advisory firms. Further, data, including market, client, and economic, is the raw material used to produce it. Therefore, data is one of the most important resources owned or used by an investment advisory firm.

The level of data integration employed by a firm is a good measure of the efficiency with which a firm produces their service. It may also be a good indicator of an advisory firm's client service, specifically the quality. This makes the level of data integration an important indicator of a firm's current and future health and profitability.

Unfortunately, merely mentioning the words data or integration is often enough to make many financial advisor professionals abruptly refer you to the nearest available IT employee. I am, of course, exaggerating to make a point, which is: investment advisory professionals should pay close attention to discussions of data and integration. Outlined below are four key reasons data integration deserves attention in financial services:

1. Increased New Business Opportunities

More often the competition for new business is won by firms able to create information that serves client needs as understood from a complete 360° view of a client. Since the competition among firms for assets is a zero-sum game, information provided to clients based upon a complete and accurate view of their needs not only win the day for the advisory service but also positively impacts client retention rates. Firms that have efficient data integration capabilities will be able create and provide a better information service to their customers. That is, they will be able to offer timely, high-quality information that is uniquely tailored to the needs of their current and prospective clients. To generate this information, these firms will need to efficiently integrate data from a large number of heterogeneous sources. These include internal operational data, third-party data, and newer data sources such as social media

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2. Increased Efficiency and Decreased Costs

There are two primary service delivery approaches implemented by investment advisory firms: best-of-breed and end-to-end. Each of these approaches creates unique integration complexities that increase costs - including data duplication, required customization, and process inefficiency.

Data is a perishable commodity - it’s a raw material that possesses a limited shelf life. Therefore, rapid and efficient access to timely data reduces waste. Over time, the logistics of internal data integration have been made more complex due to data duplication arising from siloed best-of-breed applications or inflexible end-to-end solutions. The best-of-breed and end-to-end solution approaches have made internal data integration more difficult and complex. The additions of external data sources, such as social media, add a new layer of complexity on top of this. Therefore, front, middle, and back-office technology don’t easily translate into increased efficiency. More efficient use of existing technology primarily means more efficient data integration.

Data integration remains a complex process, so a “light weight,” low cost, and efficient data integration solution managed with proper skill and expertise are needed to overcome this complexity. Such a solution, implemented as an overlay on existing technology, will greatly decrease costs.

3. Decreased Risk Exposure

Data integration efficiency directly impacts a firm’s risk exposure. Complex integration, outdated data, and poor data quality lead to the production of inconsistent, outdated, or inaccurate information – garbage in, garbage out. This greatly increases risk exposure.

Decreasing risk exposure requires timely and accurate data to be delivered both internally and externally. This enables informed decisions on the part of everyone involved in the delivery process. It also insures that processes are consistent, which results in compliant information provided to clients and regulators.

4. Increased Product Quality

Investment advisory firms’ primary product is information, and the quality of that product is directly impacted by the value and relevance of the underlying data.

Increased product quality requires advisory firms to have timely and efficient access to the most up-to-date and accurate data. In addition, product quality is increasingly defined by how well information provided to clients reflects their unique personal circumstances. This requires integration of data that is unique and customer centric. Data integration flexibility, therefore, is becoming extremely important

Data integration has a profound impact upon the quality of product produced by investment advisory firms. Moreover, product quality will increasingly be measured by how well a firm delivers information that is tailored to unique client needs. As clients begin to expect information tailored directly to their needs (think Amazon), efficient, high value data integration services will become more of a business critical function for investment firms.

CBlakely               01-2013