Data Warehousing in Financial Services: Why RIAs Need Centralized Data

Data warehousing in financial services is about driving maximum operational efficiency and effective risk management.

What is Centralized Data?

Centralized data refers to storing all organizational data in one location to create a central hub or library that is accessible to the entire organization, regardless of physical location. 

For example, a wealth management firm with a dozen offices located across the United States might create a centralized data warehouse located at its headquarters, connecting each branch office to the centralized data warehouse rather than setting up independent servers at each location.

This modern approach to data warehousing in financial services is gaining popularity. In one recent survey of nearly 500 global business leaders, more than three-quarters (78%) reported growing investments in centralized data to support their data-driven transformations.

Let’s take a look at why business leaders are eager to embrace the trend toward centralized data.

6 Major Benefits of Data Warehousing in Financial Services

In the RIA industry, the right data at the right time can make the difference between making money and losing money on investments–and between happy, loyal clients and those who are looking to leave.

For example, required minimum distributions (RMD) typically require significant administrative work for RIAs. For each client age 72 and above, there are several calculations, distributions, and compliance reporting requirements to facilitate.

Centralized data enables account aggregation. This gives the RIA access to all of the data needed to accurately calculate RMD for individual clients, including:

  • Account Balances
  • Investment Holdings
  • Contribution History
  • Beneficiary Details
  • Birth Dates
  • Account Opening Dates
  • Historical Transaction Records

The alternative is a lot of leg work to access multiple accounts using different platforms to gather the necessary information.  It’s labor intensive and increases the risk of errors.

By contrast, centralized data saves time and money, enabling more effective decisions in less time. Here are a few specific benefits of data warehousing in financial services.

1. Make More Informed, Data-Driven Decisions

Get a more holistic view of your data. In Schwab’s Advisor Outlook Study surveying 862 RIAs, more than 80% of RIAs reported using data to improve portfolio decisions. 

Here are a few ways RIAs are using data:

  • Optimize Asset Allocations or Holdings
  • Inform Strategic Changes
  • Reward Team Members with Performance-Based Incentives
  • Monitor Activities that Drive Revenue or Incur Costs
  • Track Client Interactions & Outcomes (Satisfaction Scores)
  • Record Milestones & Proactively Engage Clients through Timed Automation

Centralized data provides access to the information needed to service your clients, manage company finances, and optimize your operations. This data provides a new level of visibility across operations so that you can spend more time on activities that increase revenue and limit how much time you spend on activities that decrease revenue.

2. Save Time & Money Compiling Data

In the same study by Schwab Advisory Services, 69% of respondents use data to improve operational efficiency. For RIAs, this means that they are spending less time gathering information and more time building stronger relationships.

time is money

It takes time to log into different websites, portals, and access software programs to compile data. Paying staff to manually gather data, and compiling it into spreadsheets or internal software can be costly. Additionally, manual work increases the risk of errors. 

More errors mean more time spent fixing errors, which translates to even more costs that can be eliminated by adopting a centralized data warehouse.

3. Generate Reports Faster

Don’t scramble to gather and check data at the last minute before a client meeting. With all the data in one place–it’s easy to export and extrapolate, creating reports on the fly. This enables RIAs to share relevant, easy-to-understand data with clients in near real time. 

Read: How RIAs Boost Efficiency with Data Integration

4. Enjoy Better Data Quality

At its core, data warehousing is about taking unstructured data from various sources (and in many different formats) and converting that data into a single, consistent format. 

This means the data takes less effort to understand, making it accessible and digestible.

It also means that firms are spending less on technical talent to use and understand their data. And they’re minimizing their losses from bad data.

According to Gartner, companies lose an average of $12.9 million every year from “bad” data. This includes inaccurate, incomplete, inconsistent, or misleading data that contribute to flawed decisions.

How does bad data happen? 

  • Human Error in Manual Entry
  • Duplicate Records (Common with Decentralized Data)
  • Inconsistent Formatting 
  • Corrupted Data (Technical Failures)

A centralized data warehouse can minimize or eliminate most of the causes of bad data, providing RIAs with better quality data that they can trust to make key decisions quickly.

5. Foster Growth & Scale

Image: Fidelity Investments Study on Growth Rates for Financial Firms that Embrace Technology (Source)

According to a 2021 RIAs Benchmarking Study by Fidelity Investments, the fastest-growing firms are focused on transformative changes like technology and outsourcing. 

That growth comes from sound strategic decisions that optimize where to focus efforts to achieve the maximum return on investment.

For example, if you see that your firm is spending a lot of time tracking client milestones, drafting routine communication emails, or generating invoices, you might consider opportunities to automate some of these routine tasks. 

While each of these activities are necessary, none of them directly drive client growth or increase revenue. 

Would you rather spend time maintaining a spreadsheet of client milestones or actually engaging these clients with meaningful conversation timed around their important milestones? Spreadsheets don’t create loyal customers–conversations do. 

Would you rather spend your time meticulously drafting follow-up emails or learning more about your client’s needs through actual interaction?

Would you rather spend your time creating invoices or building investment strategies? Invoicing is a necessary part of managing your cash flow, but it doesn’t need to be labor intensive, especially when there are high-value activities that you could spend your time on.

6. Effortlessly Stay in Compliance

Whether we are talking about evolving cybersecurity needs, the Securities and Exchange Commission (SEC), or Anti-Money Laundering (AML) compliance, the financial industry has big obligations to stay accountable.

In the financial industry, most firms spend between 6-10% of their annual revenue on compliance. It’s a cost that continues to rise–eating up to one-third of an RIAs time depending on how the firm manages workflows and utilizes automation. Since 2008, compliance costs have increased by more than 60%

Compliance activities fall under the label of ‘necessary but not profitable.’ Centralized data can help RIAs optimize their time, spending less on compliance-related activities and more on things that directly generate revenue by providing clean, accurate, accessible data.

Next Steps for Data Warehousing in Financial Services

Data warehousing sounds great, but let’s take a look at what it really entails.

Some firms might develop an in-house platform. This can be a good option for control and customization, but it can also be clunky. If the in-house team that built and maintained the platform leave, there is an additional layer of operational risk.

Software without support cannot be managed properly, leaving users with a steady string of error codes instead of the data that they need. These types of systems can quickly lose value, draining resources instead of growing them.

Not every firm has the technical resources to handle data warehousing in-house. And that’s okay because partnering with software and third-party providers that do specialize in these areas can be a better approach.

Below are a couple of options:

Leverage TAMPs (Turnkey Asset Management Platforms)

Turnkey Asset Management Platforms, or TAMPs, are a common tool used to pull in data from various custodians, brokers, customer relationship management software (CRMs), and other financial technology platforms, providing advisors with all the data they need in one place.

There are two key types of TAMPs–those that are built to use proprietary strategies and those that rely on third-party provider strategies.

These platforms are increasingly becoming the future of financial technology in investment firms. TAMPs currently hold more than $2 trillion in assets under management (AUM), and the lion’s share of that comes from RIAs with $93.07 billion in AUM on TAMPs.

Partner with an Outsourcing and Automation Provider

Third-party service providers that specialize in centralized data solutions can be an effective way to automate and streamline data management processes.

These providers can build a custom data warehousing portal that aggregates information from a variety of sources, organizes the data, and displays it in digestible formats like reports and dashboards.

Empaxis has built several custom data warehouse solutions for RIAs, and now, we have built a standardized wealth management client portal that RIAs can use to pull their portfolio accounting system data into a single location.

Learn more about our centralized hub for real-time portfolio data.

Put Centralized Data Warehousing to Work for Your Firm

In 2023, the name of the game is growth, and increasingly, technology has been the most effective way to achieve it.

The job of an investment advisor looks radically different today, in terms of capacity, productivity, and opportunity, than it did a decade ago. 

This change isn’t slowing down. 

While RIAs are becoming more comfortable with the technology they are using, firms are maturing in their digital transformation and making more intentional choices based on their needs today and their ability to be flexible and scale for what comes next.

For investment firms, this looks like adopting platforms that can centralize data and bring automation to their workflows, enabling them to spend less time on activities that drain resources and more time on activities that generate revenue.

Chat with an Expert

Get the latest in financial technology support, AI and digital transformation and investment operations outsourcing

Our monthly newsletter features helpful resources, articles, and best practices to implement within technology providers and investment firms