Personalization vs privacy in data-driven wealth management
Wealth managers rely on access to personal financial data to provide better services and more personalized advice to their clients. In the digital era, the benefits of data-driven insights must be balanced against concerns around data privacy.
Most consumers are willing to share personal data in return for a better customer experience. In wealth management, that trade-off can unlock many advantages, from more personalized recommendations to the real-time visibility of assets and liabilities.
Achieving this, however, requires the sharing of sensitive information – as with many other aspects of wealth management. Advisors will often seek details of real estate investments and other assets held elsewhere in order to present a full picture of their clients’ financial position.
This granularity is needed to produce the high-level view that clients frequently want.
“The biggest thing people are interested in seeing is their total net worth,” said Leah Jones, Managing Director and Partner at Hightower Bethesda in Bethesda, Maryland. “Let’s say a client has a 401(k) outside of us, but we want to be able to see it to get their whole picture. If they have a 401(k) login, then they can create a link to a comprehensive wealth management portal we provide, which allows us and them to view their full financial picture.”
Make the benefits clear
Professional wealth managers operate under strict rules around data privacy and have security protocols in place to protect the data they gather. The most important step, however, is to make sure their clients understand the benefits of sharing their personal information.
“What I always tell clients is, it’s kind of like being a doctor,” said Jones. “You’re trying to give a comprehensive diagnosis, and the more information you have about the full picture, the better advice you can give.”
Data and technology will also allow advice to become increasingly personalized. Traditionally, wealth managers segmented clients into groups based on factors such as age, income and risk appetite. Then came psychographic segmentation based on clients’ beliefs, values, lifestyles and interests. Now, technology is paving the way for ultra-personalized segmentation, in effect putting clients in “segments of one,” according to Tej Vakta, Global Wealth Management Domain Leader at Capgemini.
Across industries, businesses see personalization as vital to improving customer retention and are increasing their investments in it. In wealth management, personalized and customized client experience ranked as the number one technology investment area in 2024 in a survey by wealthtech provider Orion (see Figure 1).
Research by McKinsey showed that the rapid spread of online platforms in recent years has led consumers to view personalization as a given — 71% expect it and 76% get frustrated when it doesn’t happen.
“Consumers are in the right to demand the same type of experience they get on any consumer social application,” said Tamara Kostova, CEO at Velexa, a provider of embedded investment solutions headquartered in London, UK.
“In the product, because we are upfront with the customer about the choice for personalization, they are excited to make that selection,” she added. “We present it as: ‘do you want us to personalize the content that we feed you, and personalize the asset classes that we provide to you?’ We ask this at the beginning of the journey, and constantly refine that touchpoint by asking whether they want more of it.”
GenAI takes the stage
As well as a host of advantages for wealth managers, the advent of generative AI-powered personal assistants with instant recall has further raised the bar for clients’ expectations of personalized service, said Vakta (see Figure 2).
“Say I asked you a question a week ago, then I come back to you today with another question, I’d expect you to not only have the full context of my historical relationship with you, but also answer me in the context of what I asked you the previous week,” added Vakta. “Or you should be able to provide an answer based on my preferences.”
To enable that level of personalization, customers need to be willing to share their user data – which, unlike the personal data pertaining to their identities, assets and liabilities, refers instead to a record of their activity patterns on the application, explained Kostova.
These activity patterns can yield crucial insights that can help serve – and even protect – clients.
“Sometimes we have people logging on to the application six or seven times without trading,” said Kostova. “This could mean they’re under financial stress because they are constantly monitoring their position.” Armed with such insights, wealth managers can choose to intervene either by sending the client a message or calling them.
Sometimes the opportunity is broader – and more positive. “By analyzing a client’s transaction history and spending habits, wealth managers can identify opportunities for optimizing financial plans, detect potential risks, and provide proactive advice,” said Ashley Longabaugh, a Principal Analyst for Celent’s wealth management practice.
Tread carefully
In all of this effort to deliver data-driven benefits, wealth managers must be careful to stay on the right side of evolving data privacy laws. To do that, they need to keep themselves updated on the latest regulations and guidelines applicable to the jurisdictions in which they operate, implement robust security measures, and obtain explicit consent from clients before collecting and using their personal data, said Longabaugh.
Wealth managers should also clearly explain to clients how their data will be used and any third parties with whom it may be shared. “Use clear and concise language to avoid confusion,” she added.
Furthermore, it’s important that wealth managers avoid simply amassing client data without a clear plan of how they will use it. According to David Hurd, EY Canada Wealth Management Leader: “If clients are going to provide permission to share their data – more data than maybe they would have historically – they’re going to want to see that there is some sort of value exchange for that data,” he said.
“If you're collecting all this data, and you’re not demonstrating the value the end investor is getting on an ongoing basis, at some point that becomes more of a risk than it is an opportunity,” added Hurd. “Then you're probably better off just not asking for it.”
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