Investing in data analysis can help superannuation funds understand their members, better informing the design of products and services.

A trove of data is sitting idle within the systems of superannuation funds and their members’ employers, which retirement solutions providers could tap to improve their offerings, Northern Trust’s Sabrina Bailey says. And that’s before the funds should even turn their minds to how they might draw insights from the broader world via big data.

Chicago-based Bailey, who is Northern Trust’s global head of retirement solutions, says the firm incorporates investor behaviour data into the development of its target date portfolios.

This has thrown up some surprising results, challenging commonly held assumptions.

For instance, research found that Millennials, the generation whose members are now aged in their 20s and 30s, exhibited the most conservative investment behaviour in five generations.

“We’re seeing Millennials with the same conservative outlook as those born in the Great Depression, with 80 per cent preferring capital conservation over growth assets, Bailey says. “There’s a lack of trust with government and financial institutions. Millennials saw the tech downturn in the early 2000s and the GFC and the impact on their parents. That’s causing them to be conservative.”

Retirement and investment products aimed at this generation might seem counterintuitive, given expectations that Millennials, well ahead of retirement, would be more risk-tolerant.

Knowing that 80 per cent of people under 39 years old seek capital preservation and 40- to 54-year-olds have a much higher risk tolerance can inform how products are developed to better suit their behaviour.

First, use what’s already there

Bailey says the starting point for finding such details is for funds to make better use of the data that already sits within their own systems and those of their business partners − such as their contributing employers, investment managers, custodians and administrators.

Over time, big data will be sourced from a wider sphere, such as social media behaviour, she predicts.

Bailey, who leads the development and deployment of Northern Trust’s defined-contribution strategy around the world, says the global pensions industry has much to learn from how consumer companies mine their data for insights into how to sell to their customers.

“Consumer companies have done a great job of using big data to sell and market their products,” she says. “A lot of administrators responsible for [retirement] plans…tend to have data on gender, savings habits and transaction habits. We have a lot of idle data accessible, but we haven’t used it.

“One could argue if we had done a more effective job of monitoring social media and day-to-day living decisions through bank accounts – and we’re not quite there yet – we’d have a better solution.”

The missing link is healthcare records, to indicate spending behaviour in retirement, but regulatory and privacy issues are blocking access, Bailey says.

Retirement providers playing catch-up

Banks, consumer companies and portfolio advisers for wealthier individuals have all effectively used big data to improve their offerings. Retirement providers a recent player in this space.

Bailey expects products to continue to improve as artificial intelligence improves at crunching big data and younger generations show fewer concerns about how their data is used.

While Millennials were more conservative investors, Bailey says, they were better informed and more comfortable with how companies use big data.

Sabrina Bailey spoke to Investment Magazine ahead of speaking at the upcoming Australian Institute of Superannuation Trustees Conference of Major Superannuation Funds (CMSF) 2018, to be held in Brisbane on March 14-16. For more information or to register, visit the event website.

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