Family offices strive to provide a wide array of financial and investment services, so it's imperative that they have a complete picture of their clients' financial assets. But implementing a cohesive account aggregation strategy is far from simple. This article will explore some of the key advantages-and challenges-involved in aggregating client financial data.

Let's first define "asset aggregation":  Asset aggregation is the process of collecting and storing financial information from multiple sources so the organization's key accounting and reporting systems can use it. An asset aggregation platform should provide adequate controls to guarantee accuracy and consistency across source systems.

A "complete" asset aggregation platform should not take any shortcuts. Data must reside in a central repository and data from all sources should be treated equally. Using Excel to combine data from a primary system with information from secondary sources, while perhaps satisfactory for certain portfolio reporting, would not constitute complete asset aggregation unless Excel replicated significant functionality in the primary system and included reconciliation.

In deciding on whether a specific aggregation solution is satisfactory in your environment, you should consider how far the implementation strays from the ideal.  While you may not require every capability that a complete aggregation strategy entails, you should not accept a solution without careful consideration of how that system incorporates all of what you may need now and in the future.

Why Is Aggregation Important?
To understand why aggregation is important we just need to look at how having complete information impacts client service. Some key examples, relevant to family offices, include the following:
Consolidated Reporting: This is the most basic advantage of aggregating data. It provides clients with a coordinated picture of their financial assets that they would be unable to get on their own. Compare looking at multiple investment statements, each with its own schedule and asset classification scheme, with a combined statement where data is presented in a consistent fashion and summarized over all data sets.

Tax Planning: Consolidating information from multiple sources provides a much clearer picture for tax planning. Analyzing potential year-end tax strategies (e.g. tax-loss selling) when all data is combined goes from a paper-and-pencil exercise to a streamlined analysis of tax planning opportunities.

Risk Analysis: Only by consolidating all financial data can one get a true picture of asset diversification and the inherent risk of an individual's investment portfolio. In addition, having all information in one place makes possible the development of applications to compare managers and rebalance portfolios to meet investment objectives.

Why Is Aggregation Difficult To Implement?
While aggregating data from multiple sources may seem like a straightforward process (aren't computers good at transferring files from one system to another?) there are various issues that must be addressed to guarantee that an aggregation platform meets your expectations. Here are some questions to consider when setting up an aggregation system.

Do you have a core system that can store and process aggregated data? The typical ultra-high-net-worth portfolio includes a wide variety of assets, each with its own characteristics.  Partnerships require custom functionality for allocation of interest. Private equity investments must process capital commitments and call provisions. Real estate may require processing of depreciation. If your system does not have asset-specific functionality, there will be limitations on your ability to fully aggregate and analyze your investments.

How will the data be imported? Manually entering data, while always possible, is not a viable solution for most family offices. Family office clients typically have many investments and manually inputting the information is a time-consuming and error-prone process, particularly if accounts need to be updated daily. For a portfolio with a large number of marketable securities, the only practical solution is to automatically import high-volume transactional and position data while manually entering low-volume data such as periodic hedge fund positions or personal assets.

Many applications used within the family office do not have a comprehensive approach toward data import. Custom modules must often be built to import data and reconcile positions, but this is not always a straightforward process. Subtle differences in the source data you may receive from investment managers or custodians, for example, make a fully automated process difficult to develop. Each source has its own unique way to represent and process data, which must be converted to your system's protocols. In addition, complicated situations such as corporate actions and the processing of reversals make development a difficult undertaking. Multiply these issues by the number of data sources and it is easy to see why the implementation of an aggregation platform can be an expensive and time-consuming activity.

What other issues can I expect?  The best data aggregation platform should strive to maintain data that is complete, up to date and consistent.  In reality, however, it's almost impossible to completely attain these goals.

Part of the problem is that not all sources provide timely reporting. Hedge fund holdings, for example, are always reported with significant delays.  A family office with a high allocation to alternative investments must make compromises between preparing timely reports and using "stale" data.

What Solutions Are Available?
Vendors and service providers recognize the importance of data aggregation and are providing workable solutions. If data aggregation is, as it should be, critical to your service mission, the following solutions might apply.  

Financial Institutions
Global financial institutions serving the ultra-high-net-worth market, such as Northern Trust and U.S. Trust, provide sophisticated technology for their clients.  They each provide ways in which portfolio data from outside sources can be aggregated with assets where they are the primary custodian and/or manager. Northern Trust, for example, provides an aggregation solution where holdings from external parties are combined with Northern data and presented through its Wealth Passport interface. U.S. Trust provides similar aggregation through its PIMS system.

If you use your provider's systems as your primary accounting and portfolio application, such solutions provide a natural way to aggregate data. They provide significant and integrated functionality without your family office having to invest in a second portfolio accounting application.

Family Office Platforms
While most family offices use the software provided by their custodians and/or primary investment managers, many prefer to implement their own integrated accounting/portfolio management system. Systems such as Archway's ATWeb and SunGard's Investran are designed to accept the widest range of asset classes and can often be customized to meet an organization's unique requirements. Family offices that purchase these solutions expect that they can aggregate all assets. While these vendors do not have data imports built for all custodians and money managers, they are very willing to work with providers to develop custom interfaces. 

It should be noted, however, that building and executing custom interfaces are not trivial exercises. Understanding the nuances of a provider's system (how do they record reversals?) and deciding how your in-house system will validate data (will your system process corporate actions and verify results received from the provider?) are but two of the issues that must be resolved.  Also, since your office may use multiple providers, developing and managing a suite of interfaces could be expensive.
An example of another asset aggregation solution is Access Custodial Data (ACD) by Advent. Several hundred custodians, using interfaces developed in conformance with specific standards, provide data to an Advent system, where it can be imported by users' applications (AXYS, APX or Geneva).

Advent's ACD interface is used not only by family offices but also by organizations such as Reliance Trust, a mid-sized private trust company. Reliance provides account aggregation services as part of its operations outsourcing solution for wealth managers. Reliance leverages Advent ACD as well as proprietary programs to aggregate portfolios and perform daily reconciliations.

Asset Aggregation Platforms
Several vendors provide solutions where asset aggregation is one of the key selling points.  Private Client Resources (PCR) and Wealthtouch are two companies that provide an integrated aggregation service and a portfolio management/reporting system. As service organizations, both Wealthtouch and PCR take full responsibility for aggregating and reconciling data using automated and manual tools, as necessary. Information is presented to users through sophisticated Web-based applications.

Another comprehensive solution is provided by Integrated Wealth Services' RockIT system.  RockIT provides a full outsourcing solution, which includes sophisticated technology as well as back-office and mid-office processing. Its systems provide a complete family office solution, including a full range of accounting and reporting capabilities. It aggregates and reconciles data on a daily basis from both manager and custodial feeds, providing a high degree of accuracy.

A Final Note
Deciding on a coherent strategy for implementing asset aggregation depends on various factors, including:
Financial considerations: What are the business benefits of comprehensive aggregation versus using a tool such as Excel to aggregate information. Remember that without custom development and enhanced operations, it is unlikely that Excel will provide as robust and controlled a platform as the solutions we have been discussing.

The status of your current platform: Does it currently integrate data from some of your sources? Can other sources be added as required?

Your strategic plans: Are you considering a new platform at this time? Are you considering a change of your global custodian?  Will there be a change in your investment portfolio that would benefit from aggregation? If so, a cohesive approach toward aggregation should be a key consideration.

Hugh Bagatelle ([email protected]) is a partner at Windward Advisory Group, a family office technology consultant in Princeton, N.J.