In 2012, with the onset of new transparency requirements, Timoty Slavin of Broadridge prophesied that a clear insight into the fees related to plan and fund administration, brokerage windows, commissions, sales charges, etc., will be available for plan sponsors and participants. However that insight is correlated to the factor that how well the complex data related to matching expenses and fees paid can be mapped to products and services delivered. One can say that it had been the tipping point for the inception of ‘Big Data’ concepts in the retirement industry. 408(b)2 rule lead to evolution of ETL and other data mining tools in the plan provider organizations to extract, normalize, aggregate and generate reports to track and report on fees and expenses charged.
Industry experts feel that the objective of the retirement industry, in particular for the plan provider organizations should not be just the effective billing mechanism through intelligent data mining. With the kind of available ‘Big Data’ related to product purchase trends, participant behaviors related to savings, loans, withdrawals and other transactions, plan providers can analyze the psychographics of plan participants in depth, and help in improving the retirement readiness of plan participants.
Big Data is a very efficient platform to help plan providers in addressing the challenges related to portfolio construction, risk management and diversification to address the priorities and challenges faced by participants. If utilized well, retirement industry can benefit exponentially from the ‘Big Data’. Considering the value which can be achieved through ‘Big Data, it has been the most discussed topic among the top circles of DC retirement industry, and even at the 2013 NAPA / ASPPA summit.
Then what is stopping the plan providers from switching to ‘Big Data’? Missing data standardization practices and also the legacy technologies which lack the analytical capabilities, come out as the top reasons. Forget about the capacity to store, decipher and analyze the data – IT systems at the plan provider organizations are facing challenges in even aggregating the data. In most of the plan provider organizations the data lies in silos with various stakeholders like plan sponsor, record keeper, trustee, fund manager, and customer service departments. Its a challenge to pull data from all these sources on to a single platform and mine those further.
Unlike the current plan provider organizations that spend billions of dollars in upgrades and maintenance of legacy and proprietary record keeping systems, organizations should start investing in technology solutions that help them gain intelligence from the available sales, asset and plan data to gain the competitive edge over the other providers. How much ever innovation you put in the product design and investment vehicles, participant engagement is the key catalyst, which will guide the DC markets through the retirement readiness revolution. Interactive communication channels supported by latest technology will be the key for better employee engagement. Fidelity is already reaping the benefits of the big data initiative. Data related to 20,000 corporate DC plans with approximately 11 million participants was analyzed. The study gave not only insights into deferral rates, account balances, but also helped many of the plan sponsors at Fidelity, to drive better retirement outcomes for the participants.
In a nut shell, ‘Big Data’ is definitely an effective solution for plan providers to know their customers better, engage with them more personally and improve the retirement readiness. ‘Big Data’ can make a huge impact on both top line (better customer services and attractive portfolio modeling) and bottom line results ( efficient operations, streamlined processes) in the plan provider organizations.