For advisors, one of the most ballyhooed promises of the dot-com era has failed to materialize–account aggregation has not made significant headway. If you remember back three or four years ago, firms like Yodlee heavily promoted their aggregation solutions as the key to capturing data on “held-away” assets, i.e., those assets not directly managed by the advisor. The argument was that capturing and monitoring those assets was essential to becoming the “trusted advisor,” the gatekeeper of the advisor-client relationship, the person the client calls first with a question or problem. Why has such promising technology failed to produce meaningful results? Was there a technological barrier? Were the solutionspriced too high or marketed improperly? Most important, can advisors expect newer, better account aggregation solutions in the future?

If we turn the clock back to 1999, in the heat of the dot-com bubble, there were about a half-dozen vendors that seized on essentially the same idea: Create a service that could extract data from multiple financial Web sites to produce a consolidated statement for the investor. It was thought that investors would pay to see their assets consolidated, including bank and brokerage accounts, retirement funds, and even stock option plans. Gaining access to this data became easier as more financial institutions made their data available via the Web, through online banking and similar sites. Account aggregation vendors gained access by utilizing the investors’ credentials–account numbers and PINs or passwords–emulating the access investors used themselves.

Account aggregation vendors chose to attack this market from two directions. One group, led by Yodlee, focused on providing solutions directly to the investor. Yodlee’s offering is now deployed through many of the leading bank and brokerage systems, such as Schwab and Citibank, as a private-labeled package. These offerings are targeted to the retail or mass-affluent client, and clients are expected to enter their credentials and use the service on their own. While most major financial institutions offer this type of solution to at least their preferred customers, the level of adoption has been relatively low, somewhere in the low single digits. The other business model adopted by aggregation vendors has been to provide services directly to the financial advisor. Vendors like Advent and ByAllAccounts have been proponents of this strategy, often referred to as “advisor aggregation,” whereby the advisor is responsible for obtaining access to his clients’ accounts, and can choose to allow the client to have online access to the aggregated data and analysis. Advisor aggregation has been positioned primarily to serve high-net-worth and ultra-HNW investors, but adoption levels have faced the same fate as in the broader consumer market.

Explaining the low adoption rates in the consumer market is not difficult. These users place a relatively low value on the resulting information (compared to financial advisors or high-net-worth investors) and, ultimately, are unwilling to pay much–if anything–for aggregated statements. The cost of providing this service has been borne by the financial institution essentially as a loss leader, as a way to keep customers happy and entice them to use more profitable offerings. But the consumer market can be demanding. For example, tracking credit card debt is a hot topic, forcing vendors to support the myriad consumer debt sites, driving up the cost of the service. Services that can be positioned only as loss leaders rarely grow into successful businesses, and the cost of providing account aggregation “to the masses” has kept vendors from enhancing their offerings to drive further adoption. The net result is low adoption rates.

A Lukewarm Response

Unlike most consumers, financial advisors place a much higher value on financial information, and will pay dearly to attract a new high-net-worth client, or to keep one from defecting. Account aggregation can and has fulfilled this promise. Harold Evensky, chairman of Coral Gables, Florida-based Evensky & Katz, was an early adopter of aggregation technology. He is typical among early adopters in that he believes that aggregation will enable him to charge fees for assets under advisement, rather than for only assets under management. Explaining the low adoption rates in this segment is much more complex. From the vendor’s perspective, the cost of providing services to financial advisors is not appreciably higher than to the retail market, so they are more willing to invest in and build out their services.

Advent Software, a major player in these markets with significant financial resources, made a large push into aggregation with its highly publicized Advent Trusted Network (ATN) offering in 2000. The company’s subsequent retreat from this beachhead is emblematic of the lukewarm response the advisor market has shown to similar offerings. No single factor explains this phenomenon, but rather a combination of forces:

The Snowball Effect. Financial advisors are at least as conservative in their technology decisions as they are in their investment decisions. Early adopters, like Evensky, represent a very small percentage of the population. The vast majority of advisors is sitting on the sidelines, waiting for a clear winner to emerge from the war among the aggregation vendors, or waiting for competitive pressure from fellow advisors to force them to make a move.

The Privacy Curtain. Traditional account aggregators, like ByAllAccounts, require client credentials, and investors, particularly high-net-worth investors, are often reluctant to disclose this information. But being the trusted advisor implies that your clients trust you with this information, and clients more often than not provide the necessary credentials to their advisors. So the privacy curtain explains only a small part of the slow adoption rates.

Covering the Bases. Firms like Advent do not require client credentials but instead rely on direct feeds from custodians. These feeds are costly and time-consuming to build (compared to supporting online access), and require a level of support from the custodian. Advent’s ATN network supports roughly 200 custodians, only a fraction of the universe of sources, which by various estimates number at least 15,000 institutions. Traditional aggregators–those who obtain account data from Web sites–face much smaller hurdles bringing on a new source, with most getting data from around 3,000 financial institutions. If a financial advisor finds that her clients’ custodians are not providing data to their chosen aggregation provider solution, adoption is quickly scaled back.

The Value Proposition. The marketing pitch around aggregation was traditionally based on the contention that advisors could grow their assets under management–from existing or new clients–or hold onto more assets in a down market if they could easily view all the clients’ assets. Any way you cut it, advisors were being asked to “bet on the come” that aggregation would pay off down the road. Only early adopters were willing to place such a bet; the rest need a more compelling story.

Immaturity. The sophistication of aggregation solutions has grown considerably over the last several years, but it is still imperfect technology. Since custodians do not have any obligation to support the needs of account aggregators, they can change their sites in ways that will stymie access to client data or, even worse, produce inaccurate results. These limitations, which are generally understood in the marketplace, inhibit usage, especially in situations where results are accessible online by clients themselves.

Duplication. Advisors see their portfolio management software (PMS) systems (Advent, Centerpiece, and so forth) as their primary repository for account-based data. Most aggregation solutions have been positioned to sit alongside the PMS system and replicate the position and transaction data. Advisors have enough problems running one system, much less two, and are reluctant to maintain account-based data in both their PMS and their aggregation system.

Cause for Hope

The collision of these factors might lead the advisor to assume that the future is bleak, but recent developments offer cause for optimism. Vendors are repositioning their offerings to feed data into the PMS system, rather than to sit alongside it, solving the “duplication” problem. For example, advisors can use ByAllAccounts to feed transactions and positions into a PMS system (Advent currently and Centerpiece soon) for those custodians that do not offer an interface. StatementOne, a leading PMS vendor in the independent broker/dealer market, has teamed with aggregation vendor CashEdge to provide a similar offering. With the integration offered through the ByAllAccounts/Advent interface, the “immaturity” problem is solved, because aggregated data is reconciled before it is imported into the PMS system, allowing the advisor to insure that it is accurate and supports performance calculations. These solutions are targeted to advisors who already have internal resources dedicated to manually entering data from custodians. Eliminating or drastically reducing this manual entry problem creates the clear value proposition that was previously missing. So, while coverage and technology maturity problems still exist, the snowball is slowly gaining momentum, and aggregation may soon be the breakthrough solution that turns ordinary advisors into trusted advisors.

Advisors seeking an aggregation solution should first look for compatibility with their PMS system. Can positions and transactions be imported? How automated is the process? How clean is the data–what percent of transactions need editing before they reconcile? Advisors need to know whether their custodians are covered by the vendor and how long the vendor takes to add a new custodian, and whether there is a charge for this. The financial viability of the vendor should be considered; since aggregation will become part of the core process within the advisory firm, make sure the vendor has the resources to survive. Lastly, understand the cost structure, and compare it to your internal costs of manually entering and correcting data from statements. Solutions that allow you to pay ? la carte, based on usage, are generally going to be the best deal.

Advisors will continue to see better aggregation solutions in the market, as vendors become more responsive to their needs. Advisors have pushed the vendor community to provide the aggregation solution that truly meets their needs, without duplicating the data maintained in their PMS, and delivers a compelling value proposition. Custodians, for their part, continue to improve the quality of data they deliver, but it is the marriage of vendor solutions with underlying market needs that will make aggregation succeed.

Gathering assets on held-away accounts is the essence of becoming the trusted advisor. Unless you are willing to manually collect data from paper statements, account aggregation is the only tool available to advisors. After many years of widely publicized promises, it appears that aggregation is finally positioned to deliver value to the advisor community.

Robert Huebscher is a consultant to software vendors serving the wealth management market. He can be reached at robert_huebscher@hotmail.com.