The dirty little secret of financial account aggregation is that, even after over a decade of effort, no aggregator has truly "cracked the code" and made the consolidation of investor accounts a 100 percent seamless operation.
At BloombergBlack -- Bloomberg’s subscription-based wealth management service for the mass affluent, for which I was product manager -- we contracted with an aggregation vendor and then addressed the issues that arose in a variety of ways. We had unparalleled resources, including Bloomberg’s Security Master, a highly experienced development team and an operations staff with data quality OCD, and even then it was a slog. Assuming your firm doesn’t have Bloomberg’s wherewithal (and few do), you’ll want to select your aggregation partner very carefully.
Part of what makes aggregation hard is that the aggregation services want consistent access to accurate data from custodians, but custodians have no real incentive to give the aggregators what they want. The custodian’s relationship is with the client, or in the case of a 401(k), with the client and his or her employer. The objectives of these participants aren’t always in sync, just as they aren’t in health care relationships among patients, physicians, insurers and employers. In fact, for years many custodians argued that giving credentials to an aggregator would violate their terms of service (the rise of Quicken, Mint, et al helped muffle these protests).
Not surprisingly, custodians care a great deal about account security. From time to time, a custodian may implement a security protocol that disrupts the aggregator’s processes. For example, many institutions employ a "multi-factor authentication" process so that when a client logs in from a new device or IP address the institutions may throw up a “challenge question” (such as the ubiquitous “What was the name of your first pet?” or “What was your mother’s maiden name?”) This can make the account more secure, but makes it harder (in some cases virtually impossible) for the aggregator’s technology.
Data Quality An Issue
As a result, data from aggregators can be of poorer quality than that received directly from custodians. This is because the custodian feed typically comes from the books and records of the firm, which also feed statements. There are precise SEC rules about what must be on custodian statements (as well as rules enabling the customer to dispute what’s on them), but the information displayed on the screens being scraped or in OFX files is considered distinct from client statements, and there are no standards for the information being provided.
Given these challenges, some aggregators implement business rules to ensure the quality of their data. Others leave this to the receiver of the information, which can be quite a headache for clients of aggregation services since the data can be thorny and inconsistent. For example, in many cases the dividends a client receives are not assigned to any specific security (in some cases, the assignment is simply included in the “comments” field). Transfers to other accounts, corporate actions and other cash flows may also not be captured. Inaccurate cash-flow data will lead to inaccurate performance calculations, which is often a raison d'etre for aggregation in the first place. (As someone who had to refine aggregated data to regularly display portfolio insights at BloombergBlack, I can speak firsthand about how frustrating it is to receive “data dumps” that aren’t optimized for the end purpose of your product.)
Times Are Changing
There have recently been some shake-ups in the aggregator field, not least of which is Morningstar’s recent purchase of ByAllAccounts. But I wouldn’t look to the “old guard” of aggregators for a silver bullet. The incumbent technology is poorly suited for optimizing data pulls or for tightly coupling the extracted data for use in performance and analysis.
Indeed, new firms are taking up the aggregation gauntlet and attacking the problems with a fresh eye. One firm to keep your eye on is Quovo, an up-and-coming technology firm in New York. Unlike the legacy aggregators, Quovo doesn’t just spit out holdings and transaction records; instead, it applies a number of proprietary checks and portfolio analytics to extracted data in order to double-check data from disparate sources for reliability when it comes to generating insights.
Choosing An Aggregation Solution