Aggregation or Aggravation

Mar 27, 2018

Niko Karvounis - QuovoAll the way back in 2013, I wrote about aggregation, how it all worked and the good, the bad and the ugly for advisors using it. The post had the most comments of any blog post I’ve written. In the intervening five years, little has changed in the way that advisors use aggregation, so feel free to re-read the post—it’s all still relevant. The fact is that the aggregation world should have changed a lot as it’s the key tool for financial planners to give a client a holistic view of their net worth. Has it? In this update, I’ll cover what has changed and then how it may evolve moving forward. To help me, for the second half of the post, I talked to Niko Karvounis, the co-founder and chief product officer at Quovo.

There are two types of aggregation data

It’s worth diving into aggregation data to understand the conversation with Niko later. There are two types of data aggregation, which we have dubbed User Permissioned and Advisor Permissioned.

aggregation

For User Permissioned, the investor must link the different accounts that will be included in their reporting. Occasionally, this must be redone as the link becomes stale and does not work. This instability is one of the key frustrations with aggregation. On the other hand, Advisor Permissioned accounts can be done by the advisor and is more stable as it uses custodial feeds.

aggregation

User Permissioned accounts includes the investment accounts that cannot be done by the advisor (e.g., 401(k) and 529 accounts) and credit accounts (such as credit cards). Advisor Permissioned includes all types of data for investment accounts. In this case, the depth of aggregation allows performance reports to be created. Some advisors have built their value proposition by analyzing the performance of an investor’s accounts. This is especially important for the ultra-high-net-worth investors. It can be suggested that a client would benefit when they consolidate their accounts with an advisor, as advisors can only perform Advisor Permissioned aggregation on accounts they manage.

However, as more advisors increase their services to include financial planning, the focus is moving on to User Permissioned data. For the investor with a couple of million in investable assets, the planning of how to make the most of those assets is key. The good news here is that User Permissioned data is inexpensive in comparison to Advisor Permissioned, as the reconciliation necessary to create quality performance data takes time, people and additional processes.

The barriers between the two types of aggregation are blurring as more APIs are available, but it’s this division that has led to the slow evolution of the practical use of aggregation data.

The state of aggregation firms

In recent years, the lure of aggregation has been too much for companies wanting to build out their financial platforms. We saw the following acquisitions:

  • CashEdge acquired by Fiserv in 2011 for $460 million
  • ByAllAccounts acquired by Morningstar in 2014 for $28 million
  • Yodlee acquired by Envestnet in 2015 for $590 million

As the concept of financial planning with its need for aggregation continues its ascendancy, it’s understandable the business bets these companies are making with the large investment in these acquisitions. Sources of aggregation data also became scarcer when Intuit, the granddaddy of aggregators, discontinued the access of data through their APIs in 2016.

Who’s left? You have companies like eMoney who some advisors use solely for their client portal and their good quality aggregation. There are other players like Aqumulate and MX who are newer arrivals to the advisor market. And that brings us to Quovo. In recent years, Quovo is popping up everywhere and supplying a lot of platforms from robos to financial planning software to financial platforms. They have just received more funding and are making the most of their independent status in the market.

Aggregation or aggravation Click To Tweet

How has aggregation changed?

So what have the aggregators been doing? I asked Niko how aggregation has evolved in the last five years. He feels like the core usage of aggregation has not changed much. The adoption is not as high as you would expect. One reason for this is that the way that the investor consumes aggregation has not changed. They still present reports and screens, which show their net worth and all of their holdings. This is something that only needs reviewing occasionally.

Aggregation is a function where the advisor is asking the investor to do work. As described above in the User Permissioned authorization, the advisor is not allowed to do this for the investor. When an advisor is interacting with their client, they’re constantly trying to reduce their workload and show value by doing it for them. In most cases, an investor can aggregate simply and easily. But at other times, when things go wrong, it can appear that the advisor has asked the investor to do something that they find frustrating. This is something that the advisor can’t control.

But what has changed is under the surface. There’s now much more data that’s being accessed by data feed. Also, the algorithms are much better for reconciling the data, both in terms of identifying bad data (always possible with humans involved), and then coming up with ways of fixing that bad data (notifying a human or filling in a gap).

Aggregation companies also have started to create widgets that display the data in better ways. This includes budgeting and cash flow screens to better integrate authorization screens.

The way forward is actionable data

Niko then turned to how aggregation will be used in the future. His vision is “actionable data.” As described above, the primary use case for account aggregation today is to centralize held-away and managed assets and liabilities in order to construct a holistic picture of an investor’s net worth. This enables advisors to provide more insightful advice but is not entirely actionable. But what if the data was organized and presented differently? What if you designed an advisor workflow so that at the point a decision is made all of the data you need to make that decision is displayed or available (through an API)? This is actionable data. In this scenario, the information becomes more important as it’s built into the way investors or advisors make financial decisions or carry out financial transactions. A good example of this is a capability Quovo has started to roll out for transferring securities across accounts via Automated Customer Account Transfer System (ACATS). Account transfers between custodians can take many days or even weeks due to manual processes and errors. However, Quovo can now organize and deliver the data required to initiate an ACATS transfer, potentially minimizing errors and significantly reducing transfer times. By making the transfer of securities across accounts less painful, Quovo is equipping advisors with a tool that can expand their books and assets under management. Niko sees this as one of many ways that aggregated data can be leveraged to streamline important investment workflows that have historically been cumbersome.

State of aggregation

So, in some ways, aggregation may still have its challenges, but the data is now of a higher quality, and workflows are being built or reshaped to use the data more effectively. One thing is clear: Aggregation data is the foundation of good planning and investment decisions. Moreover, the industry is becoming increasingly effective in using the data.

The opinions and views expressed herein are by Niko Karvounis. SEI bears no responsibility for their accuracy. Niko Karvounis and Quovo are not affiliated with SEI or its subsidiaries.

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Raef Lee

Raef Lee

Raef Lee is the technology contributor for Practically Speaking and also serves as a managing director for the SEI Advisor Network.

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