Behavioural finance and big data – how our new Knowledge Transfer Partnership will help ensure suitable investments and advice for all

We are living through the 4th industrial revolution and the related revolution in behavioural science. Over the coming years there is not a profession that will be untouched by the combination of big data with insights from behavioural economics, psychology and neuroscience – blurring the lines between humans and technology.

If you think about your use of Siri, Alexa or Google assistant to tell you in a very human fashion; what the weather will be today, to play your favourite track or find directions to a restaurant – these virtual assistants are making your life easier by combining large amounts of data with machine learning and expertise on how to carry out a particular task.

At the other end of the spectrum Google’s Deep Mind is using big data and artificial intelligence to analyse cancer in CT scans to support the speed and accuracy of oncology consultants. IBM’s Watson is being used to analyse legal cases to free up time in law firms from case preparation work so lawyers can spend more time with their clients.

This is not about machines replacing humans as professionals. It is about how machines can support human interaction, making experts more productive, more insightful and freeing them up from more mundane, repetitive tasks by combining big data and expert analytics. Financial planning is uniquely well positioned to benefit from big data analytics and recent advances in behavioural finance. Advisers have profiled over 1 million clients since RDR using Dynamic Planner and analysis of that data on an anonymised, aggregated basis has allowed us to continually enhance our suitability model and algorithms.

As a company innovation is in our DNA. We were the first company in the UK to provide risk based cashflow planning online, we were the first tech company to be used by the regulator to analyse financial advice and more recently platform based portfolios. We were first to launch native risk profiling apps to aid face to face discussions around suitability between advisers and their clients.

When we began to think about how we could best take advantage of the leap forward in technology and behavioural finance we recognised that partnering with an academic institution of international standing would enable us to advance our position as thought leaders in the industry. As an independent firm committed to objective financial planning analysis it became clear the best way of doing this was through Innovate UK match funding a Knowledge Transfer Partnership with Reading University and Henley Business School. It was a lengthy process to be approved for funding but one in which we were successful.

Innovate UK is part of UK Research and Innovation, a non-departmental public body funded by a grant-in-aid from the UK government. Their mission is to drive productivity and economic growth by supporting businesses to develop and realise the potential of new ideas, including those from the UK’s world-class research base. Since 2007, Innovate UK have invested around £2.5 billion to help businesses across the country to innovate, with match funding from industry taking the total value of projects above £4.3 billion. They have helped 8,500 organisations create around 70,000 jobs and added an estimated £18 billion of value to the UK economy.

This is very much the beginning of our journey in the application of big data and analytics to the financial planning and suitability challenges that face the industry as regulations designed to enhance investor protection grow and the need to enhance efficiencies and demonstrate the value of advisers and advice become ever more pressing. This KTP will help us future proof advice firms.

We are excited about what we will find over the next two years and about using those findings to pursue our purpose and vision of suitable advice and suitable investments for all.