Morningstar's ByAllAccounts deal could give it big edge with advisers

Acquisition could put the fund tracker in the lead of the portfolio accounting and reporting business

By Carl O'Donnell

Apr 2, 2014 @ 1:12 pm (Updated 12:47 pm) EST

morningstar, byallaccounts, portfolio, assets, advisers

Its $28 million acquisition of data aggregator ByAllAccounts has put Morningstar Inc. in control of a technology that is relied on by many of the company's competitors.

About 40 companies, including Morningstar, sell portfolio accounting and reporting systems that rely on ByAllAccounts' technology to help users — typically financial advisers — see a full picture of clients' assets, according to James Carney, president and chief executive of ByAllAccounts.

“If you are a purveyor of this technology and also sell a portfolio accounting and reporting system, you are in an interesting position,” said Tim Welsh, principal of Nexus Strategy, a wealth management consultancy. “You could easily undercut competitors by bundling in ByAllAccounts for free.”

ByAllAccounts offers a tool that aggregates information from all of a client's accounts, including those that the adviser does not manage herself, such as a 401(k) or 529 plan.

Morningstar may consider using the purchase of ByAllAccounts, announced Wednesday, as an opportunity to offer “some sort of packaging or bundling or potential discounts” to users of the company's portfolio accounting and reporting system, said Chris Boruff, managing director of business operations at Morningstar.

The company does not plan on charging competitors higher rates to use ByAllAccounts' product, Mr. Boruff said.

“Our intent is not to somehow leverage our power or access to do something that is not in the best interest of our customers,” he said.

The financial information company will encourage ByAllAccounts to expand its business among competing firms, Mr. Boruff said, adding that Morningstar already did business with many of those competitors before the acquisition, including sales of investment data and technologies.

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“Morningstar is in a very unique position in the market where they compete with these companies and sell to them,” Mr. Carney said. “What was important to us is that they will allow us to grow our business.”

The hope, said Mr. Carney, is that Morningstar's larger client network and sales force will help ByAllAccounts grow faster. For example, Morningstar has relationships with large broker dealers like LPL Financial, Ameriprise Financial, and the ING group, Mr. Boruff said. The company's sales force is “hundreds of times larger” than ByAllAccounts', he added.

“Morningstar has more depth and breadth in the marketplace today and this will give ByAllAccounts more exposure faster,” said Geoff Bobroff, principal of Bobroff Consulting Inc., which serves investment companies.

Morningstar also plans on benefiting from the acquisition by integrating ByAllAccounts into more Morningstar products. Mr. Boruff said he sees an application for ByAllAccounts data aggregation tool, which uses artificial intelligence to “crawl” clients' accounts, on Morningstar.com, as well as in the company's retirement management offering.

“Users of our retirement management system will be able to build better 401(k) portfolios if they get a holistic look at all of their holdings,” Mr. Boruff said.

ByAllAccounts is not the only company to offer data aggregation services, Mr. Welsh said. There are three other options: Cash Edge, Intuit, and Yodlee. However, ByAllAccounts is often a top choice for financial advisers and institutional investors because the company focuses on reconciled data, which takes into account difficult-to-measure aspects of portfolio value such as stock splits, dividends and hedge funds, he said.

“The acquisition makes perfect sense to me given the fact that Morningstar in the past has acquired firms like DB Cam Technologies Inc. for portfolio management capabilities,” said Chip Kispert, managing partner of Beacon Strategies. “This is an example of Morningstar broadening their footprint into the data management business to better support their tools and provide more value to their broker-dealer clients.”