How can investors be empowered through data ownership?

An investor risk profile is required by law prior to providing investment advice or financial planning.

The “suitability assessment” must ensure that an investment recommendation or recommended portfolio strategy is suitable for the client.  Financial institutions currently face many challenges in meeting regulatory requirements for collecting suitability data. Traditional methods are time-consuming, inconsistent, and often lack user engagement, resulting in high operational costs and low digital conversion rates.  Furthermore, people have to fill out similar questionnaires if they want to compare or switch banks. This hinders investor empowerment and discourages investing altogether.

Back in 2019, as part of a research program at EDHEC, I wrote a blog on how to address this situation, see: Improve digital MiFID profiling using behavioral smarts | EDHEC Risk Climate Impact Institute. The blog concluded with a vision that has only become more relevant:

“In the future, ideally, the investor profile effectively belongs to the investor.  Citizens carry their ID to identify themselves as a person.  Investors should similarly carry their investor profile to inform on their investor preferences.  The investor profile should therefore be generic and interpretable by “all” financial institutions.  Financial institutions may differ on the solution or advice they link to particular investor preferences, but the investor profile as such ideally belongs to the investor and is hence transferrable.  Investors should not have as many profiles as there are financial institutions.”

The blog focused on improving data quality and the data collection process.  The goal is threefold: first, to generate more data by turning the data collection process into an engaging screen-flow that people can complete on their own; second, to improve data quality by using a quantitative rather than a Q&A-based method; and finally, to get more people investing and therefore doing more business.  This is still a key component of everyoneINVESTED’s offering today, precisely because investor onboarding is so critical to building a long-term investor relationship.

Now add data ownership, the topic of this post. Since 2019, a number of things have clearly evolved in this context.  For one, the general public’s awareness of data has increased. People now often assume data ownership, take data security for granted, and rely on the most stringent data protection.  And rightly so.  Regulatory initiatives at national and supranational level aim to create a framework that supports this, think GDPR, and technology is seeking standards to gain efficiency, think the EiDAS2-based architecture of the EU Digital Identity including verifiable credentials and digital wallets.

Financial institutions may initially feel threatened by the idea of their customers being able to share suitability data with other banks, as this will make comparisons easier.  In our view, there is much more to be gained by getting everyone invested!  Moreover, the broader industry trend is towards greater transparency, data sharing and investor protection.  In fact, let’s focus on the scalability of investment and advisory services to make sure we can serve everyone.  At everyoneINVESTED we are confident that the ownership and portability of suitability data will prove to be a strength and an opportunity, rather than a weakness or a threat.