The Good, the Bad and Ugly of Account Aggregation

Oct 24, 2013

The following is a guest blog post by Raef Lee, Managing Director for the SEI Advisor Network. In addition to writing tips Raef-Leefor advisors on technology, Raef is responsible for exploring new services and markets for the SEI Advisor Network. Connect with him on LinkedIn now or follow him on Twitter: @SEIRaefL.

A long time ago, a younger Raef would avidly wait for the next version of Intuit’s Quicken Personal Finance software and then happily spend an inordinate amount of time with his 128 kbps modem downloading transactions from his (few) bank accounts and (many) credit cards. I spent much time categorizing transactions and creating budget reports in those days. I even chose my credit cards by whether or not they supported a Quicken download format. I did all of this to get a view of where the family’s cash was (no investments in those days) and how we were spending. My wife thought I was bonkers and took pleasure in dismissing with an eye roll any report I proudly presented. Little did she realize that I was ahead of my time.

Fast forward to today: My moment has come. Aggregation of assets to give an investor or their advisor a holistic view is now more important than ever.

Aggregation Basics

A quick review of how aggregation works:

Aggregation Components

Aggregation is the pulling together of account information from the different record-holding systems. Data sources can include the main advisor custodians (for example Schwab, Fidelity), insurance companies (for annuities and other insurance with a cash value), and other ‘held away” investor account types (401k, 529, credit cards, banking checking and savings accounts).

There are other data sources (not shown), such as the multiple systems within a custodian or bank, called internal aggregation. There are also systems which have no technical interface, which require manual data entry from a statement.

The key is to pull a client’s complete holdings from all these sources to provide a holistic client view of their net worth.

There are several methods of pulling all this data together, including: direct feeds (a unique data feed between the custodian and the aggregator), a network (such as DTCC or DST), and “screen scraping.” Screen scraping is a program that mimics a user interacting with a computer screen. It knows where buttons and text entry fields are and “scrapes” the data that is shown on the screen.
Once all this disparate data is pulled together, it is reconciled, scrubbed and then mapped to a single data schema, typically in a portfolio management system.

If the data has been well-scrubbed, and transaction information has been collected from the data sources, it can be run through a performance system to provide a comprehensive report for the whole client portfolio, as well as for individual accounts.
The account information is then presented to the advisor and the investor through a client reporting package, financial planning software or more recently a CRM.

The Good (Clint Eastwood)
It is a triumph for the client and their advisor when custodians provide client data to aggregators and other portfolio management programs. It’s surprising that aggregation is even possible. In the UK for instance, this collaboration between custodians is in its infancy and it is next to impossible to see a client’s aggregated holdings.

Here are some of the good services allowed by aggregation:

  • Client View. The bedrock aggregation capability is for an advisor to show clients their full financial picture (assets and liabilities) in one place, and then be able to advise their clients on why it looks like that and what their options are.
  •  Performance. Advisor can now show their clients performance on their entire holdings—both assets they manage and those they do not. Clients can quickly see what parts of a portfolio are doing well, and which are not. Benchmarks allow a more objective discussion of the portfolio. Only recently has the quality of aggregated data allowed performance figures to be calculated over a client’s complete holdings. With it, an advisor can use this discussion as a way to bring more of their clients’ assets under their management.
  • Client Reporting. Today’s sophisticated client reporting enables an advisor to generate flexible, good-looking, and timely client reports at the click of a button. With a well integrated system, an advisor’s client service representative no longer needs to spend a day creating a folder full of relevant paper reports for a client review.

In general, as shown in the diagram, the value of the information to the client is increased each step of the way from account-level aggregation through performance to easy-to-explain reporting.

The Bad (Lee Van Cleef)
The benefits of aggregation are clear, so why isn’t everyone doing it? There are two main reasons:

  • Quality of Data. A holistic view is only useful if the advisor and client trust the data. Good aggregated data is difficult to create. The data has to be pulled together and then put into a single data structure. However what one custodian calls a dividend another might call a buy. Some information, like an asset price, may be missing. This leads to complex mapping and a data scrubbing factory. From an advisor perspective, the first thing is to outsource this type of work; doing data scrubbing is not why you became an advisor! Choose an aggregation partner who can explain their process and give you confidence in the integrity of the data that they are providing you.
  • Cost. With some account-level aggregation systems the cost for an advisor can be around $40 to $60 per year per account. With clients having multiple accounts, costs can quickly rack up. In the diagram, the cost of the aggregated data increases as you move from left to right across the data sources. The most inexpensive solution is if everything is custodied in one place. The cost goes up as data is aggregated from other custodians and then moves higher as data is screen-scraped from the held-away accounts. The most inexpensive solution for an advisor is a partner who provides not only account-level aggregated data, but bundles the performance and the client reporting as well.

The Ugly (Eli Wallach)
Client frustration with the ‘screen scrape’ model is the Achilles’ heel for aggregation. To ensure that the right accounts are linked together and that an advisor complies with the custody rule, SEC Rule 206(4)-2, it is up to the client to enter their username and password to allow the aggregation linkage. These links sometimes break, due to tightening security and website redesigns and require maintenance. It is the advisor who is then in the position of chasing down their client to ensure that the system is working. Advisors do not like being the nudge in the process as they are blamed for the rickety technology, and confidence decreases in planning decisions made as a result.

Aggregation Trends
However as the systems mature, the good is winning out over the bad and ugly. As fee-based advice continues to advance and sophisticated financial planning tools are the norm, the need for aggregation only becomes more important. Here are some of the trends:

  • Due to issues with screen scraping there is a drive to replace it with either direct feeds or network access. Aggregators are constantly adding to the custodians that they can access directly.
  • Advisors have historically not charged for advice on assets that they do not manage (such as 401k assets). With good reporting, this is changing as clients are realizing that there is value in a holistic view of their finances. Some advisors are charging half of their regular advisory fee on held away assets; others are going whole hog and charging the full fee. A key question for a potential aggregation partner: can they provide billing information on held away assets?
  • As the integration of systems continues, more aggregated information is being passed into financial planning systems and CRMs. Some financial planning companies (such as eMoney Advisor) think that this is so important that they do the aggregation for you. This allows an advisor to see a holistic client view, whichever one of their applications they are working in.
  • One of the key values of and the Robo-advisors (see previous post) is that they are providing account-level aggregation bundled into their services. It is an inexpensive way for an investor to access aggregation. This will increase client expectations and advisors will be pushed to provide holistic reporting.
  • Due to the headaches of maintaining aggregation systems for the advisor, many only provide aggregated information to their top clients. As the systems become more reliable and easy to maintain, there will be a move to offer the service to a broader client base.

The good is winning out. Aggregation is winning over aggravation. Even my wife admits that I was ahead of my time, albeit with her normal eye roll.


Share Button
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.

Learn More About Raef Lee



Recent Tweets