Driven by client demand, technology advances and increasing advisor interest, 2011 has been a banner year for account aggregation, but wealth managers are divided on how to price the service.
Otherwise known as consolidated reporting, account aggregation refers to the addition of a client’s “held-away” assets from other sources such as a retirement plan to a wealth managers’ reporting statement, giving the advisor a complete picture of the clients’ assets.
Account aggregation business is up approximately 40 percent this year at ByAllAccounts, a data aggregation service based in Woburn, Mass., according to chief executive James Carney. What’s more, assets the firm aggregates each night have more than doubled in the past year from approximately $200 billion to $430 billion at the end of October, said ByAllAccounts vice president of marketing Cynthia Stephens.
CashEdge, another leading data aggregator, which was acquired by Fiserve earlier this year, has seen the number of financial advisors using its account aggregation service increase by approximately 30 percent, according to Nilesh Dusane, vice president of product strategy for aggregation. Over 70 percent of advisors CashEdge surveyed this year said their clients had pro-actively asked them to provide advice on held-away assets, Dusane said.
“In years past, account aggregation was a positive differentiator for wealth managers,” said Gary Carrai, senior managing director for Fortigent, the Rockville, Md.-based wealth management platform provider. “Now I would say it’s a negative differentiator—if you don’t offer account aggregation, you’re a step behind your competition. It’s become mainstream.”
Indeed, wealth managers and industry observers say account aggregation provides a host of benefits, including a more complete picture of client holdings—which allows advisors to give better advice and service—and longer-lasting, “stickier” relationships with clients—who may be more reluctant to leave someone with broad knowledge of all their financial affairs.
Operational advantages to providing account aggregation include efficiencies in areas such as scaling, productivity, re-balancing and compliance, according to a white paper released earlier this year by Pershing and FA Insight.
“The need for wealth managers to see the big picture has increased exponentially,” Dan Inveen, principal and director of research at FA Insight, the Tacoma, Wash.-based industry consulting and research firm. “This has gone hand-in-hand with the industry shift away from selling products to emphasizing relationships and offering holistic wealth management. Now they have the tools and the ability to complete the picture and fill in the blanks.”
But how exactly wealth managers should charge for account aggregation remains a matter of debate.
Cash Edge’s Dusane said increasing assets under management is the “primary driver” for most advisors and broker-dealers who offer account aggregation. “They would like to monetize their ability to provide advice on held-away assets,” he said.
Kent Fitzpatrick, managing director for Asset Strategy Consultants’ office in suburban Boston, said his firm uses account aggregation as “a tool to attract new clients and expand our footprint with existing clients.” If the firm provides advice on the held-away assets, it charges the client a discounted fee on those assets, usually a reduction from its standard percentage of assets under management fee, Fitzpatrick said.
Some industry consultants argue that advisors are also justified in charging clients their full fee, if they provide advice that warrants it. “If the advisor is providing services based on the entire portfolio, then it’s appropriate to charge their prevailing fee,” said Bill Winterberg, a technology consultant for advisors who blogs about financial software at FP Pad.
Inveen agreed. “If you’re responsible for managing a client’s entire portfolio, the charges should be based on the value you’re delivering to that client,” he said. “The charges shouldn’t be constrained because a portfolio includes held-away assets.”
But last year only about a third of financial advisors charged for advice on held-away money, according to a CashEdge survey. And in a ByAllAccounts survey also taken last year, 54 percent of advisors said they did not bill on held-away assets. Indeed, many, like Kevin Lilly, president of Avalon Advisors’ wealth management division, see account aggregation as a value-added service for their clients.
“The client gets to see everything on one page, and it’s a better frame of reference for us,” Lilly said. “But we don’t charge for it, and we don’t see it as a way to pull in those other assets. I understand if a client doesn’t want to have one manager for everything. There’s plenty of money to go around, and I don’t need 100 percent of my clients’ money to have good relations with them.”
Experts cautioned that account aggregation isn’t hassle-free, and can be time-consuming, especially if it involves tracking down illiquid assets or assets that aren’t available in electronic form.
“It can be complicated, because not all custodians report the same way, and if information is not available electronically, it’s not easy to obtain,” Carrai said. “And now it’s not unusual for a portfolio of a high-net-worth client to be one-third illiquid, with holdings in real estate, private equity and hedge funds.”
In addition, passwords and security protocols for a clients’ held-away account may change, Winterberg said. “Only the client can fix it and resolve the issue, but they may not get around to doing it right away, so information on an aggregated account may not always be up to date.”
Clients may also be wary about having one advisor knowing everything about their financial life.
“One prospect said that after Madoff he purposefully had accounts in different places,” Fitzpatrick said.”We said that was understandable and had to explain that we would just coordinate the reporting, not have custody of all the accounts.”