PLANADVISER - September/October 2018 - 47

" That's just one way that looking beyond the average is
critically important, " Doran adds. " Another area in particular
where data can be really powerful is in helping define the
appropriate target-date fund solution for a given plan population.
Using big data can help you define whether a to- or
through-retirement glide path is appropriate, for example. "
Cybersecurity Protection
" As fiduciaries to the plan, " Delaney says, " you need to be
regularly going to your providers and asking, 'What are you
doing to protect the security of not only the assets in the
plan, but also the personal identifying information and the
sensitive datasets?' You should be staying proactively aware
of the ongoing enhancements of systems and processes
surrounding cybersecurity. Protecting data is critical as a
fiduciary. "
Not long ago, Delaney was invited to check out the
so-called " cybersecurity dark room " at a very large recordkeeper,
and what she saw amazed her.
" It has large teams of expert employees working all
day and overnight, 24/7, whose sole job is to monitor and
defend the endless number of hacking attempts and spamming
attempts, " Delaney says. " Deterring the people trying
to hack into our [industry's] systems is naturally a huge
priority for it. This is why we are seeing things such as
voice recognition coming out, more sophisticated password
requirements, etc. "
As it stands, Delaney and Doran are unaware of any
major known breaches of 401(k) plan assets, but there have
been some peripheral breaches of personal identifying
information and some falsely acquired loans.
" We have actually heard from the recordkeepers that it
is more dangerous for somebody not to have their account
information set up online or not to give identifying information
to the recordkeeper, " says Delaney. " Participants might
believe that staying 'off the grid' makes them safer, but the
opposite is true. They are more of a target that may be easier
to defraud, because they will be easier to impersonate, and
there will just be less visibility. "
Third-Party Providers Gear Up
According to Mark Friedenthal, president and chief investment
officer (CIO) of Friedenthal Financial, an RIA firm
in Voorhees Township, New Jersey, the retirement plan
industry is at only the beginning of the road when it comes
to leveraging big data. A tool he devised to help meet the
challenge is Tolerisk.
Friedenthal describes Tolerisk as " a proprietary fintech
tool that assesses risk tolerance so advisers can more properly
align clients' financial and investment goals. "
" [Its] origin goes back about 10 years, when I started [Friedenthal
Financial], " he says. " Like a lot of advisers, I felt like
I couldn't find the right tool or product to help clients figure
out how much risk to take, in an efficient and scalable way. "
Friedenthal found himself laboring over the same kind
of mathematical and data-driven techniques that he had
practiced during his early career, working at some big
investment companies. The work was effective but timeconsuming
and not at all scalable.
" In the DC plan space, in particular, we felt that the
automated risk tolerance solutions were still very rudimentary
and could not be relied on, " Friedenthal recalls.
These consisted of using self-reported personality tests and
making some basic linear adjustments to risk-taking, based
on the participant's time horizon to retirement. " We knew
that wasn't enough-it was not objective or factual enough, "
he says. " To put it simply, we felt we could take the techniques
we were using to evaluate bonds and bond portfolios
and, instead, point these toward household cash flows. "
According to Friedenthal, this household analysis is
actually much more complex than reviewing a bond portfolio.
Being able to rely on advanced modeling software that
simultaneously considers huge numbers of input variables
and possible outcomes is essential.
A bond portfolio has pre-defined maturity durations
and pays coupons at regular intervals, he explains. " On
the household side, it is money going in and coming out at
irregular intervals, and you are dealing with more than one
individual and more than one investment horizon.
" Client response to this analysis was so powerful that, a
couple of years later, another light bulb went on, " he says.
He realized he could start a separate firm dedicated to
analyzing data, apart from serving clients as an RIA. Packaged
into an outsourced solution, Tolerisk was born.
While he is proud of the work he has done, Friedenthal
freely admits his firm is one of many that are actively
exploring ways to better serve DC plan advisers and sponsors
with big-data-based solutions and services.
He hints at " something very big coming for the DC plan
space pretty soon. Clearly, this is a very hot area of development
right now, " he says.
He sees automated and verified data feeds growing only
more important over time, to replace traditional client selfreporting,
which, he says, " people don't always do well. [If
you ask,] 'How much do you spend, on average, per month?'
clients will often have problems answering this accurately, "
he says.
" If we can get [their] permission to aggregate their
data from other tools-say QuickBooks, Quicken, Mint or
eMoney-that can be so much more powerful, " he says.
" This gives us a real view into the money coming in and
money coming out, rather than just relying on unverified
reporting from the individual. " -John Manganaro
KEY TAKEAWAYS
* Actionable data produced by DC plans has doubled every
two years for the past decade and is expected to increase
at an even faster rate in the next decade.
* Advisers can help plan sponsors use plan data to analyze
the investments, deferral rates and retirement readiness
of various demographic groups and, from there, suggest
plan design changes.
* It will be important to aggregate savings data on participants
in order to understand their retirement readiness
holistically.
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