In the wake of morningstar’s recent purchase of ByAllAccounts, this seems like a particularly good time to take a look at a firm called Quovo. Without discussing the relative merits of the Morningstar purchase, I think it is fair to say that the level of satisfaction throughout the industry with account aggregation has been rather low. Before I tar and feather the whole industry, let’s take a step back.
Broadly speaking, there are multiple arguments for using an account aggregation service. One is for performance reporting, another is for automatically populating other applications such as financial planning software. Providing clients with a consolidated view of their holdings is yet another reason.
Performance reporting requires a high degree of accuracy down to the individual transaction level, and there is no room for error. If you are going to furnish performance numbers to a client, from a regulatory and compliance perspective you are held to a high standard. One of the arguments for performance reporting using an account aggregation service is that you can monitor all of the clients’ finances, even held away assets, and if you are overseeing those assets, you can charge the client for your services.
Account aggregation for the purposes of populating financial planning software and consolidated statements is somewhat less demanding. You need the account balances to be correct, but the transaction details are not usually critical to the process. If you currently update account balances in your financial planning software manually, the ability to push aggregated account balances automatically into your financial planning software provides efficiencies by saving time and labor, but transactional data is not necessary.
When account aggregation firms first courted advisors over a decade ago, the impression I had was that they overcharged, overpromised and underdelivered. I remember going to conferences and hearing salespeople tell advisors that they could consolidate all of their data so that advisors could generate performance reports and charge for those assets, including held away assets. It didn’t quite work out that way. In many cases, the data the advisors wanted was not available through direct feeds, so some of the data was incomplete or of poor quality. Just about every advisor I knew at the time who used account aggregation felt that it was better than nothing, but nowhere near what they expected it to be. Using account aggregation to feed data into financial planning software and other applications was not a major consideration at that time because the cost of aggregation exclusively for that purpose was too high, and the technology at the time didn’t support that type of integration.
Over the years, much has changed, but much has remained the same. Using aggregated account balances to populate applications such as financial planning software is gaining traction. The usability of the data for the task is generally believed to be sufficient. It has also become more affordable. To cite just one example: Until recently, MoneyGuidePro offered aggregated balances through a partnership with CashEdge priced at $1,500 per year. At the 2014 Technology Tools for Today Conference, MoneyGuidePro announced a deal to offer account aggregation through Yodlee with an introductory price of $365 per year. At a dollar a day, it is difficult to imagine a reason for an advisor who uses MoneyGuidePro NOT to use account aggregation.
With regard to performance reporting and data aggregation, the recent past has been a mixed bag. Although the quality of data from ByAllAccounts in particular is better than it has ever been, I still hear complaints that performance reporting falls short of expectations. Many firms I’ve talked with tell me they have a person that spends a substantial amount of time dealing with reconciliation issues related to their account aggregation services. Furthermore, since FISERV purchased CashEdge in 2011, ByAllAccounts has pretty much been the only game in town for independent advisors who want to aggregate accounts for performance purposes (Private Client Resources has been aggregating data for its clients, but until recently few independent RIA firms used it.)
One could argue that, even before Morningstar’s purchase of ByAllAccounts, the aggregation space was ripe for some new competitors, and now it certainly is. It should come as no surprise then that a number of firms are launching, or about to launch, competing aggregation services. One of the more interesting entrants to the space is Quovo.
It appears that Quovo was initially founded to serve individual investors as a sort of crowd-sourced investment platform, but it has since realized that its technology can be valuable to financial advisors, portfolio managers and other financial services firms, so the firm has changed its focus to the institutional side of the business. Quovo was founded by two Harvard graduates, Niko Karvounis and Lowell Putnam. Karvounis previously worked at LexisNexis, so he has familiarity with big data. Putnam worked as an associate at Lehman Brothers, and he is the great grandson of George Putnam, who founded the Putnam mutual funds in 1937.
The founders of Quovo believe that there are four stages of integration:
Stage 1 is simple integration. They view this as the retail sites that pull account balances and credit card transactions. This is fine for giving retail investors a snapshot of their finances, and as discussed above it may be sufficient to populate and update financial planning software automatically, but you can’t do much analysis with such limited data.
Stage 2 looks beyond balances and looks at individual investment transactions. This is the type of data that should be sufficient for performance reporting, assuming all the data is accurate all of the time, or at least as accurate as the direct feeds that advisors receive from custodians.
Stage 3 takes the data from Stage 2 and performs extra steps to ensure the data is accurate. This is often referred to as data normalization. The firm doing the checking uses algorithms to check the data against relevant reference sets and to identify and further examine outliers. Some firms serving advisors claim they perform this type of analysis, but the feedback we receive to date is that results are mixed at best.
Stage 4 is taking this accurate data and using it to power analytics and visualizations in order to maximize the value of the data.
Quovo says that it offers Stage 3 aggregation as well as some Stage 4 capabilities, and that there are more on the way. Because of the nature of the product, it is impossible for me to fully evaluate the firm’s claims (to do so, I’d need a sufficient number of challenging data feeds to reconcile; ideally, I’d also require applications capable of consuming data through the firm’s API), but Quovo did set me up with a dashboard and some live data to run some tests on. Based on what I’ve seen, I think the software is worth looking into.
Quovo uses a number of methods to ensure that its data is accurate. For example, it maintains its own independent security master database going back to the 1990s. This allows the firm to backfill missing price data on a security, for example. Quovo makes use of heuristic algorithms to spot potential problems. Although the firm does not sell itself as a performance reporting solution, the software does independently calculate performance. The firm also maintains its own corporate actions database, which allows it to know when these actions are taking place, and this allows the firm to be on the lookout for data that falls outside the expected parameters.
For history that predates its database, Quovo allows advisors to upload old paper statements that they or their clients have access to. Quovo technology can then “read” those statements and use the data to populate its database. Uploading files is easy. Advisors can drag and drop paper statements into Quovo for processing. If the clients have their own statements, the advisor can send the clients links to a page that allows them to drag and drop the files, which are then stored online for the clients’ use in the future.
The synchronization of client accounts is simple and compliant. If it is being done at the advisor’s office, the advisor logs on to Quovo and selects the institution that has an account to be aggregated (Quovo claims to aggregate from over 18,000 institutions). The advisor then turns the keyboard over to the clients so they can enter their credentials. As an alternative, the process can be done remotely by sending the clients a link so they can initiate the process at their homes.
The Quovo dashboard I sampled offered insight into what Quovo is capable of, so let’s spend a few minutes discussing it. At the top of the dashboard are buttons that allow you to select a time frame (perhaps one, three, six or 12 months). You can see performance over all of your accounts, such as the performance against a selected benchmark, volatility against the benchmark, AUM, the growth of AUM over the period, the number of clients, the clients added during the period, asset allocation, sector allocation and more. An analytics section gives you greater details on performance, asset allocations and risk versus return statistics in a graphic-rich environment.
The client section starts with a list of all clients, their total assets, discretionary assets, held-away assets, performance, risk and the largest exposures. You can drill down into any account for detailed analytics on that client’s accounts. The visual presentation of performance, portfolio values, alpha, risk versus return, allocation, etc. is impressive. The dashboards illustrate the potential value of Quovo data, but it is not the whole story.
One of the things that make Quovo particularly interesting is that it can push all of this data, including the performance calculations and the MPT statistics, through its API. That opens up a world of possibilities for custodians, broker/dealers and third-party software providers, because any software platform that can consume this data can then create its own user interface and present the data in a unique way, combining performance with analytics in a tightly integrated fashion. The ability to receive all this data from a single feed, assuming it is accurate, opens up the potential for richer, more powerful applications for advisors as well as better reporting to clients.
Quovo has a refreshing approach to pricing as well. First of all, it says it will price on the level of aggregation you need. If you only need Stage 1 type data, that’s all you’ll pay for. If you want Stage 4 data, you’ll pay more. It also charges by the household, not the individual account. That’s because the company wants you to use the service for all of your accounts. This intuitively makes sense. In order to get value from the analytics in particular, you need to use the service across all of a client’s accounts. Quovo has not published list prices yet, but it claims it is highly competitive in its pricing. We’ll have to wait and see.
Although it is impossible for us to fully vet Quovo without using it in a real advisory firm environment, conceptually it has a great deal of appeal. If Quovo’s data is as solid as the firm says it is, and if Quovo can get performance reporting providers like Schwab Performance Technologies, Advent/Black Diamond, Envestnet/Tamarac, Orion and others to accept its data feeds, advisors stand to benefit greatly. For now, all we can say with certainty is that Quovo has great potential in the advisory space; we’ll have to wait and see if that potential is realized.