It may sound creepy, but smart data can help people saving for retirement modify their behavior and savings rate by knowing so much about them it can customize how to manage their retirement plans and asset allocations.
Smart data is, roughly, information collected and formatted for immediate analysis near its source, enabling it to be quickly acted upon. Later it may be sent "downstream" to be consolidated for deeper analysis.
Investment News reports that, in place of averages used to guide participants, smart data can leverage data from a recordkeeping system about plan participants, and then go deeper—mining available data about the individual and his or her family: outside assets, credit card and other debt such as student loans, plus spending habits, health care data and social media profiles.
Using all this information, smart data can come up with customized advice for participants—and, the report says,“can actually lead to changes in behavior, making financial wellness more than at best a Band-Aid, or at worst a cover-up, by making personal and reasonable recommendations.”
Companies such as Envestnet Retirement Solutions, NextCapital, Fidelity Investments and Empower Retirement are “making big bets on dynamic managed accounts,” such as Envestnet’s Yodlee, which goes beyond the screen-scraping technology used by most data aggregators and actually gets permission from the host to access accounts.
That way they have access to information that cybersecurity concerns will otherwise make it harder to obtain in days to come.
And while the industry as a whole has been slow on the uptake in adopting smart data, some experts—such as Nobel Prize-winning Professor Richard Thaler from the University of Chicago and Shlomo Benartzi from UCLA—are urging more and better use of this new tool.
Benartzi, the report says, “urges the 401(k) industry to use more nudging through e-mails, texts and even personalized videos,” adding, “All this only gets more effective through the use of smart data, as well as by designing smarter screens to drive better behavior.”
Why the delay? Limited investment in technology, for one thing, and limited vision and innovation, for another. Companies are also trying to hold onto data they already have on systems that aren’t up to the task of producing smart data from already-stored data.
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