Please explain what data aggregation is, why is it relevant to the business needs of wealth managers and what impact and benefit a wealth management business can expect to see from engagement?
Data aggregation combines a client’s financial information held at different service providers and/or systems into a single view to provide a more holistic picture of the client’s wealth. This can come in one of two forms – shadow accounting and aggregating for financial planning. Shadow accounting mirrors the books and records of the third party, ensuring that all transactions and positions fully reconcile daily. Aggregating for financial planning purposes limits the scope to only gathering position information for inclusion in reporting and analysis.
Aggregating data is a requirement to compete in wealth management. A comprehensive view of the client’s holdings enables the advisor to make more informed decisions on future asset allocations and can result in better outcomes for the client in meeting future goals. Research shows that advisors who aggregate data for financial planning can position themselves as the trusted advisor to gain additional wallet share.
If you look at this topic across the sector today, where is the wealth management sector in its engagement with the topic of data aggregation? Perhaps you can provide some examples of what has happened, what is happening, what is happening next and how involved the industry has been around this topic?
Firms have recognized the value of data aggregation and are actively leveraging automation to improve the quality and timeliness of the data. However, aggregating data is still challenging for many organizations. Sharing data across a large number of systems, providers and products increases the complexity and effort needed to reconcile transactions and positions, especially as there are no standards in place. No single aggregation firm has been able to seamlessly bring all the pieces of the puzzle together. Despite attempts, there has been little progress in determining a single format to use for all asset and liabilities. This makes outsourcing the technology and/or function an attractive proposition.
The concept of ‘Aggregator of Aggregators’ is beginning to gain momentum — where larger firms with more sophisticated infrastructures gather data from other aggregators, normalizing data and delivering to the organizations for accounting purposes. This alleviates some of the effort needed to normalize data between counterparties. There is also a movement towards a ‘follow the sun’ process, which utilizes offshore resources to reconcile data so it is available for start-of-day processing. This approach requires a significant investment in people – ensuring your offshore partner is well-trained, operating as an extension of your business; process – validating that your procedures have been fully tested across a wide variety of situations; and technology – deploying automation to ensure scale.
Is this a topic that is relevant to all types of wealth management organisation or is it more relevant to firms of a particular type, size and client base?
This topic is important to all wealth management organizations because every firm has a business need to bring client data together, whether it be the ‘single pane of glass’ for reporting, performance measurement, financial planning or asset allocation. Wealth management firms have come to accept that data is dispersed over many systems, vendors and service providers, and investors are willing to pay a premium for convenience, including a single view of their information.
Multi-family offices have been dealing with this challenge for many years, mainly driven by family preferences of custodian and brokers. Their need for consolidation centres around reporting and asset allocation.
Traditional wealth managers – Registered Investment Advisors (RIAs) and trust banks – need to aggregate data for goals-based financial planning, investment management and client reporting.
What are the elements of a successful data aggregation strategy and process and how close is the market or specific players from delivering this?
The elements of a successful strategy include:
- Ensuring delivery of accurate data early in the trading day
- Coverage for many counterparties
- Delivery of a flexible reporting solution
Every provider has their strengths and weaknesses with many firms having achieved some level of mastery on the first three items leading to a market of niche providers. It is going to be difficult for one single firm to meet all the requirements of a successful strategy because the components are very diverse in nature. The most logical approach is engaging in strategic partnerships.
What is the role and offering of FIS around data aggregation and what are you doing to engage and enable your existing and target market around this area?
FIS has been very active in the data aggregation space. We have created the infrastructure to provide our clients with shadow accounting from various custodians for inclusion in our wealth management platform for our business process outsourcing clients. This solution is based on ‘follow the sun’ concept with a highly automated process of data gathering, normalization and homogenization, and reconciliation. This allows us to provide our clients with necessary scale and predictable operational outcome to grow their business.
We have also partnered with Wealth Access to gather data from hundreds of different sources for client reporting and financial planning. We understand the need to consolidate information and continue to invest in solutions to enable our clients to better serve their customers.