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The Times They Are A-Changin’

The power of Insights and Analytics in Retirement.

The tune that Dylan sang in 1964 prophesying change becomes more pertinent with each passing year. We know live in a time where a machine (Libratus) is capable of bluffing us and beating the best humans at Poker. Somewhere else, Target is predicting pregnancies based on the shopping habits of women.

These are examples of how companies are using Analytics to improve and innovate: Google is able to predict flu trends by simply aggregating search queries, UPS optimizes delivery routes for their field agents, P&G is using predictive analytics to come up with new products, Amazon gives customers recommendations based on various criteria. Why, even Obama ran a very targeted campaign (see project Narwhal) to become President.

There are broadly three kinds of insights one can uncover with Analytics:
a. Uncovering patterns in data (Descriptive Analytics)
b. Forecasts – on multiple fronts such as sales, customer trends etc. (Predictive Analytics)
c. Answers to specific questions and decision making (Prescriptive analytics)

The driving force behind analytics is data. The more data one has, the more precise and powerful insights one can possibly obtain. And that brings us back to our domain where Record keepers today are in an enviable position – they are ‘sitting on’ decades of data on plans, participants, sponsors, advisors, Investments, 1099s, 5500s and so much more. With Analytics, plan providers can get very powerful insights, which they otherwise would be oblivious to. Depending on priorities, one can choose to focus on one or more of the types of Analytics listed above.

What if, as a Retirement Plan Administrator/ Recordkeeper, one can get access to actionable insights such as these listed below:

a. Uncovering patterns in data:
– 31% of the New Business acquisitions have happened in the month of March (after the testing season)
– 22% of participants in Cincinnati, OH have taken one or more loans. This is substantially higher than the national average of 13%
– The average annualized rate of return of funds in self-directed brokerage accounts is 1.7%, which is lower than 3.2% in Managed Account Program

b. Forecasts:
– The capacity utilization of your Home Office team for the next quarter will be between 66 and 71%
– There will be a 25% increase in adoption of the Robo Advisor program if the fee is decreased by 40%, and 10% increase if the fee is decreased by 25%
– Changing the match formula from 100% of the first 6% of EE contributions to 50% of the first 12% of EE contributions will increase EE contributions by at least 4%

c. Specific Answers/ Decision Making:
– IVR Optimization
– 2% of your non-standardized plans contribute to 10% of the total administrative expenses. Click on the link to view the list of plans
– Amend existing plans to offer Roth option: Plans that offer Roth sources in addition to pre-tax sources have an average account balance of 156,000 as opposed to plans that offer only pre-tax sources which have an average balance of 118,000

Providers can use analytics to profile customers, send targeted messages, increase sales, forecast capacity and demand, improve operational efficiencies, retain more customers, and even use social media Analytics to run powerful campaigns. As you can see, the possibilities are endless. The ability to decipher patterns in data, understand correlations and solve for problems combined with the ability to predict outcomes makes this a tool that should be central to any Business.

Of course, with a large data repository comes great responsibility. An increase in our digital footprints raises privacy concerns, and companies will have to be careful not to cross that line. However, as clear from the examples above, one can derive highly actionable and valuable insights from the aggregate data without compromising on personal data

The Retirement industry has always been a little slow in the adoption of disruptive technologies and ideas, but it is time to change, for as Dylan said ‘Your old road is rapidly aging. Please get out of the new one if you can’t lend your hand. Cause the times they are a-changing’

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