The data economy conundrum

21 Apr 2022

It's a complex world. On one hand, I worry about who has access to my personal data and how they are using it. On the other, I get incredibly frustrated when I can't immediately resolve the latest annoying failure of my ageing memory (normally music trivia).

I wonder what kind of dystopian epics the likes of Aldous Huxley and George Orwell would be penning if they were 21st century keyboard warriors. For some time, artificial intelligence and big data have spawned inevitable parallels with Big Brother and the Ministry of Truth.

Accademia burgeons with papers warning of the thin line between the radical transformation to a data-based economy and the undue influence of ‘big tech', foreign agencies and domestic governments. Data breaches look set to be the next industrial scale ‘PPI-like' opportunity for cold callers.

That same thin line can be drawn through all industries, service propositions and even leisure activities. The retirement planning, financial advice and wealth sectors are only now beginning their own data economy transformations. Industries such as retail and travel are unrecognisable from a decade ago.

Booking.com serves 137,791 destinations, 28.9 million properties in 229 countries (2019 figures). Most of its operations are centred at its Amsterdam headquarters, where it employs 1,800 engineers (90% of its workforce). Now is the time for people far smarter than me to shape the wealth propositions and the ethical and regulatory boundaries that will steer us away from dystopian rocks and towards, if not utopian, then at least calmer seas.

Silent Alarm

Data has become one of the most important commodities in the world. The intrinsic market value of data is not published on the world's commodity exchanges in the way oil, gold, or wheat is for instance. However, the monetary worth of data is increasingly reflected in the enterprise value of listed companies. Dwight Eisenhower, Republican president of the USA for the greater part of the 1950s, once stated: "A people that values its privileges above its principles soon loses both". So how are we doing on the principles front? Are there any warning bells being sounded that should influence our industry?

Informed consumers are driving the evolution of the data economy in several comprehensive and interesting ways. Some of the influences are ultimately driven by regulatory change and others by societal pressures and buying decisions. Broadly, consumers are asking two complex questions. Firstly, where, and how is my personal data stored and how is it being used? Secondly, where is the information I need in order to make good decisions and how can I contribute my own experience to that source data?

If you use an Apple iPhone or other device to store your passwords there is a handy little feature called ‘Detect Compromised Passwords'. Other phone formats have a similar feature, as do many web browsers. This feature will highlight any username and password combinations that have appeared in known data leaks.

Believe me, it can be pretty scary and result in hours or password resetting grind. If you are wondering why most websites, apps and portals containing financial data now require two-factor authentication as a minimum, it's because simple username and password combinations are inherently unsafe.

Warning number one is fairly obvious: we are custodians of client data. It's theirs, we don't own it! We must ensure that we use it in line with their wishes. But we also have a duty to protect it as we would if they entrusted one of their most valuable assets to us for safekeeping. Invest in cyber security, ensure any software that you buy, rent or build is fit for purpose and robust enough to protect your customers' data from falling into the wrong hands.

The current spotlight and increased consumer awareness of environmental, social and governance (ESG) funds is a prime example of both regulators and the market responding to the demand for data. David Attenborough's Witness Statement: ‘A Life on Our Planet' will probably be seen by future academics as one of the turning points in public attitudes to the environment. The so-called "Attenborough Effect" has "prompted an increasing number of people to care about how they make their money as well as how much money they make", says The Mail on Sunday.

Burning up

The rush of data aggregators and data suppliers to be trusted sources of ESG metrics is impressive, despite the general view that things may become more confusing in the short term. The volume of often conflicting data, and the greenwashing of existing funds, makes it difficult to see the (burning) wood for the carbon-capturing trees.

Here we find warning number two: too much data can sometimes be the enemy of enlightenment. When customers are presented with information, they will have varying needs and capacities to understand what is being placed in front of them. Often ‘less is more', especially if the option of providing more detailed information is available when required. Annual investment reports will be getting lengthier and more complex when adding ESG targets. Maybe this is an opportunity to consider how much information and in what format clients want to see and look again at report templates.

Finally, some thoughts about personal data aggregation and connectivity. Step through a typical advice process, particularly a new client acquisition. You will soon see how far our industry is from scalable, repeatable, controllable, error-free processes. Data moves from databases to paper, to scanned PDFs, to fingers on keyboards, to written forms, to CRM systems, to online tools, to new product providers, all with as much automation as one of the first car production lines. There was a reason why the first cars were very expensive and only available to the affluent. There is a reason why it is only the relatively wealthy that can afford financial advice today.

Looking forward, you can expect to see increased pressure (or if you are so inclined, exert some pressure) for common data standards, open APIs, modular software, lower-cost onboarding and servicing, increased use of robotics and artificial intelligence. Maybe not this year or even next year - if the time taken to get the pensions dashboard off the ground is anything to go by.

There will be firms and technology suppliers that lead the way though, using big data, connectivity, and artificial intelligence to provide better customer outcomes at lower prices to more customers. It is, after all, a Brave New World.

by Andrew Martin, Chief Commercial Officer at Dunstan Thomas.

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