Wealthfront, Vanguard tap data aggregation to increase assets, improve financial planning for clients

Three robo-advisers are pulling in new information on all types of client accounts in the past month alone to improve service

Apr 1, 2016 @ 1:36 pm

By Alessandra Malito

+ Zoom

In a matter of a month, three robo-advisers have added data aggregation to their arsenal, saying it helps provide a full financial picture and better financial advice for clients.

Betterment, Vanguard Personal Advisor Services and, as of Thursday, Wealthfront have announced they will be pulling in information on all types of client accounts, including savings and checking accounts, credit card, mortgages and even the money transferred between friends or colleagues via smartphone apps.

Account aggregation "will take the platform a step forward, for each individual client," said Sean McDermott, an analyst at Corporate Insight. Many industry watchers have argued robo-advisers are doing a disservice to their users with the lack of a full financial picture, "and this is putting that argument to rest," he said.

Vanguard Personal Advisor Services, the hybrid robo-adviser Vanguard rolled out of beta last year, partnered with data aggregator Envestnet | Yodlee recently. Katie Hirt, a Vanguard spokeswoman, said the aggregator offers a more intuitive experience for clients, who will then have a more comprehensive view of their portfolio.

"Additionally, they are having conversations with personal advisers to discuss their total portfolio," Mrs. Hirt said.

Having more knowledge can put pressure on these platforms to provide better advice, but it is the right kind of pressure, said Greg Vigrass, president of Folio Institutional, a robo-adviser that works with financial institutions and advisers.

"There will be an increasing level of sophistication required, in terms of dealing with the added data, but I think generally speaking, knowing more and having transparency into the entire picture should genuinely be good," he said.

Data aggregation has been around for decades, first done manually and then automated, but industry watchers say it really started to heat up in the industry in 2015. Lowell Putnam, chief executive of data aggregator Quovo, said he has seen more robo platforms adopting this technology than traditional advisory firms, but expects to see numbers go up on both sides.

Mr. Vigrass said he sees that too, as this technology has the potential to impact the processes of every portfolio.

Other robos have been using account aggregation for years now, such as SigFig and hybrid-robo Personal Capital, but the tool is getting popular among other companies as they begin to move more toward financial planning, said David Benskin, chief executive of Wealth Access, a personal financial management platform for advisers.

"They are going from asset management and tax efficient ETF portfolios to now taking in another level of financial planning," Mr. Benskin said. "The commodity of asset management is not the key driver there."

This trend is also growing as younger clients, who robos have been known to attract what with their low fees and technology, are accumulating assets and more complicated financial situations, Mr. McDermott said.

"It is about matching a growing need," he said.

But it's also a smart business move, said John Prendergast, chief executive of Blueleaf.

"Aggregation not only gets clients vastly more complete services, but helps the advisory firm, whether robo or regular, grow faster," Mr. Prendergast said. While clients are seeing all of their finances in one spot, so are the platforms that can then figure out how to bring those assets on to manage.

There's also the case of the Department of Labor's fiduciary rule, expected on Wednesday, that will require all advisers to act in the best interest of their clients' retirement accounts. Pulling in outside account data will be crucial to these platforms, and traditional robos, understanding their clients better. Robos that are registered with the Securities and Exchange Commission as a registered investment adviser must act as a fiduciary, but for a while their platforms were only showing one account — the one they managed.

By knowing not only demographics, but more information on the household, assets and debts and insurance policies, said Tom White, chief executive of iQuantifi, an automated financial planning service, there's a full gamut for which to offer better advice to accounts managed.

"Robos are now, whether they do it on their own or as a result [of the DOL], moving in that direction," he said.

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