What Is Aggregation?

Aggregation in the futures markets is a principal involving the combination of all future positions owned or controlled by a single trader or group of traders. Aggregation in a financial planning sense, however, is a time-saving accounting method that consolidates an individual’s financial data from various institutions.

It is increasingly popular with advisers for servicing clients’ accounts, as they are able to discuss the accounts in a cleaner, more easily understood way with the client before they break down the account into its respective categories.

How Aggregation Works

Financial advisors use account-aggregation technology to gather position and transaction information from investors’ retail accounts held at other financial institutions. Aggregators provide investors and their advisors with a centralized view of the investor’s complete financial situation, including daily updates.

Financial planners handle both managed and unmanaged accounts. Managed accounts contain assets under the advisor’s control that are held by the advisor’s custodian. The planners utilize portfolio management and reporting software for capturing a client’s data through a direct link from the custodian. It is important for the planner to have all the accounts because aggregating them without the complete collection would paint an inaccurate picture of that client's finances.

Key Takeaways

  • Financial advisors and banks aggregate their customer's information so that they are able to easily produce a clear picture of that client's finances. Also, it adds an additional level of protection for the client.
  • Advisors and planners hit a wall when their clients do not give them full access, and they argue that it does not allow them the full-picture view needed to give accurate advice on their client's finances.
  • Aggregation is beneficial for both parties but the edge goes to the financial advisor, who may or may not see a gap in a client's servicing where they might be able to upsell a product or service.

Additionally, unmanaged accounts contain assets that are not under the advisor’s control, but are nevertheless important to the client’s financial plan. Examples include 401(k) accounts, personal checking or savings accounts, pensions, and credit card accounts.

The advisor’s concern with managed accounts is lack of accessibility when the client does not provide log-in information. Advisors cannot offer an all-encompassing approach to financial planning and asset management without daily updates on non-managed accounts.

Importance of Account Aggregation

Account aggregation services solve the issue by providing a convenient method for obtaining current position and transaction information about accounts held at most retail bank or brokerage. Because investors’ privacy is protected, disclosing their personal-access information for each non-managed account is unnecessary.

Financial planners use aggregate account software for analyzing a client’s total assets, liabilities, and net worth; income and expenses; and trends in assets, liability, net worth and transaction values. The advisor also assesses various risks in a client’s portfolio before making investment decisions.

Effects of Account Aggregation

In late 2015, banks such as J.P. Morgan Chase & Company, Wells Fargo & Company and Bank of America Corporation disrupted data flow to certain aggregation services utilizing clients’ usernames and passwords when accessing the banks’ websites. This action may have increased the sites’ traffic and hindered other clients’ access to their personal account information.

To alleviate the issue, many aggregation services arranged—and still do—direct data connections between brokerage firms and financial institutions, rather than utilizing the institutions’ consumer-facing websites. Clients give financial institutions their consent by providing personal information for the aggregate services.