Leveraging Data Clean Rooms: Bridging the Gap between Asset Managers and End Investors
By Morne Fischer, Managing Director, xSMTHS
Compounding this issue is the continuous decrease in investment fees, which puts a strain on even the largest IFAs’ marketing budgets, hindering their ability to scale their customer base or increase the value of their clients’ portfolios. The need for data and marketing technologies that allow for large-scale personalisation often exceeds these IFAs’ budgetary constraints and skill sets.
However, the scenario presents an interesting opportunity: asset managers possess the resources for marketing and loyalty initiatives, while IFAs have valuable insights and connections with end investors. The question is how to exploit each entity’s strengths without jeopardising the IFAs’ customer relationships. The solution could lie in the concept of a Data Clean Room.
This software tool matches user-level data from various sources without actually sharing any personally identifiable information (PII) or raw data. It offers a secure environment to host data for collective analysis while complying with regulations. It is a privacy-compliant, secure platform that connects anonymised advertising and marketing data from different parties.
In the wealth management context, it provides a way to use datasets from IFAs and end investors, which are regulated by stringent privacy laws such as the General Data Protection Regulation (GDPR) and Financial Conduct Authority (FCA) guidelines. Unlike other data sharing methods, it offers detailed marketing impression data while placing privacy-safe restrictions on user-level results. It safeguards PII data by hashing it during transmission to the cleanroom, where it is then encrypted and protected against unauthorised access.
Data Clean Room offers benefits beyond effective targeting and cross-media attribution. It enables data sharing between asset management companies, advisors, end-investors, and media channels, enhancing market research and product personalisation. This is particularly crucial as many providers struggle to understand the evolving needs of younger investors.
The extensive reach of the financial advisor channel, combined with regulatory or unwillingness constraints to share end-investor data, positions data clean rooms as a means to leverage extensive data in a privacy-safe manner. It allows the wealth management sector to gain insights about investors throughout their investment journey – from saving for a first home to planning retirement. Incorporating the perspective of financial advisors enhances the potential for upselling and cross-selling opportunities. Within the sphere of wealth management and insurance, the use of data clean rooms also goes beyond marketing. It can be used by a variety of stakeholders such as other financial institutions, insurance firms, and regulatory bodies. Here are some potential applications of data clean rooms within wealth management and insurance industries:
- Customer Profiling: Many wealth management and insurance companies have to analyse customer data to grasp their preferences, financial statuses, and risk profiles. A data clean room enables them to safely compile and anonymise customer information from diverse sources like transaction records, investment portfolios, and insurance plans. This permits them to gather insights and create personalised services without violating privacy.
- Risk Assessment: Insurance firms can use data clean rooms for risk evaluation and premium rate calculation. By analysing anonymised information from multiple sources, like historical claims, demographic data, and environmental factors, insurers can discern patterns and correlations to assess risks associated with specific regions, jobs, or lifestyles. This allows them to provide precise coverage and pricing schemes while preserving the privacy of individual policyholders.
- Fraud Detection: The wealth and insurance sectors can benefit from data clean rooms in identifying fraudulent operations. Secure sharing of anonymised data about suspicious transactions, claim patterns, or network analysis can facilitate financial institutions and insurers to detect potential fraud strategies and formulate preventive measures. Clean rooms aid in the exchange of pertinent data while safeguarding customer privacy and adhering to data protection laws.
- Regulatory Compliance: Governments and regulatory bodies play a vital role in supervising the wealth and insurance industries. Data clean rooms can aid these entities in collecting aggregated and anonymised data from financial institutions and insurance firms to monitor compliance, evaluate market risks, and devise policies.This ensures that regulators can view the industry as a whole without accessing data at an individual level, thereby guaranteeing privacy and confidentiality.
At first glance, implementing Data Clean Rooms might seem challenging. However, with a fare degree of data cleansing and standardisation upfront, it’s become a common practice in various industries, notably retail and media. The financial services sector has also embraced it successfully. JP Morgan Asset Management, for instance, uses this approach to refine its investment strategies and client services. Goldman Sachs leverages it to bolster research capabilities and generate data-driven insights, while Prudential Financial utilises it to improve underwriting processes and risk assessments.
In conclusion, the wealth and asset management industry has long faced a seemingly insurmountable divide in establishing direct and meaningful connections with end investors. However, with the advent of Data Clean Rooms, we are beginning to see a shift in this narrative. The technology paves the way for a new era of personalisation and targeted marketing, all the while respecting stringent data privacy laws. It signifies a revolution in how asset management firms and their advisors can better comprehend and serve their ultimate consumer – the end investor. As the industry adopts these clean rooms, asset managers can now move beyond general brand awareness campaigns to build nuanced and data-driven strategies that not only drive growth but also foster a stronger connection with the end investor.