Online account aggregation could hurt advisers

The next big thing could be a big headache for financial advisers.

Banks, brokerage houses, mutual fund companies and a bevy of others are rushing to help investors consolidate their financial lives at a single website.

So-called account aggregation is the hottest offering in online financial services because it eliminates the frustration of using multiple sites.

But more important, it creates a captured audience that can be cross-sold other products – including advice – while effectively freezing out the competition.

Even the big boys have taken notice. Charles Schwab & Co. and Fidelity Investments are the latest financial heavyweights to confirm plans to launch account aggregation sites.

Schwab expects to begin offering the fast-growing service by early next year.

Boston’s Fidelity, already testing the technology with some of its advisers, declines to specify when it will be rolled out.

While the service is likely to be free, Fidelity and Schwab no doubt aim to profit by selling products and services to its users – including advice.

“Where people aggregate, especially if it’s a place they trust to give them advice, I think almost by definition it will attract assets,” says Daniel O. Leemon, executive vice president and chief strategy officer at San Francisco-based Schwab.

Through the use of sophisticated technology, it offers online consumers the ability to keep an eye on their investments, bank transactions and even frequent-flier miles on a single screen.

Celent Communications, a research firm in Cambridge, Mass., estimates that only about 100,000 people use account aggregation today. By 2002, however, the company expects that number to balloon to 4 million. U.S. Bancorp Piper Jaffray in Minneapolis says the number will reach 90 million by 2005.

citigroup in the lead

In August, Citigroup Inc. of New York became the first financial services giant to offer an account aggregation service. “It’s gone way beyond our expectations,” says Mark Rodgers, a Citigroup spokesman, of the site, www.myciti.com. “We’re getting thousands of new users each week.”

Among others jumping on the aggregation bandwagon recently are brokerage houses Morgan Stanley Dean Witter & Co., Merrill Lynch & Co. and Paine Webber Group Inc., all in New York.

Scudder Kemper Investments Inc., a fund company in New York, just ended a six-week pilot of an account aggregation program and is making plans to roll out the service by yearend.

Kelly O’Donnell, a consultant at Boston’s Cerulli Associates, says advisers should “keep an eye on what big firms are doing” in account aggregation.

So why should advisers be wary? For one thing, account aggregation eliminates the role advisers play in assembling a complete picture of a client’s financial well-being.

Gone will be the days when an investor walks into an adviser’s office, plops down a folder crammed with dozens of account statements and goes home, secure in the knowledge that the adviser will be able to make sense of it all.

“It means advisers are going to have to move up the value-added chain,” says Don Phillips, chief executive officer of Morningstar Inc., the Chicago fund tracker. “A part of what an adviser does will now be automated.”

Even more threatening to advisers, however, is that many account aggregation sites will soon begin dishing out advice. The next evolution, say experts, is to offer guidance on everything from asset allocation to specific fund recommendations.

“We’re talking to a number of advice companies right now,” says Melanie Flanigan, a spokeswoman for Yodlee.com in Redwood Shores, Calif., which provides account aggregation services for such companies as Citigroup, America Online Inc. and Morgan Stanley.

“We will soon be integrating best-of-breed tools and applications in the area of financial advice and financial analysis.”

move called inevitable

L. Patrick Gardner, co-founder and chief executive officer of By All Accounts.com, a Woburn, Mass., developer of account aggregation software, says the move by aggregators into the advice arena is inevitable.

“Aggregation in and of itself is not empowering,” he says. “It’s the analytics that will really empower the use of the data.”

Mr. Gardner, a former national sales manager for the retirement plan services group at Schwab, says advisers should embrace, not fear, account aggregation. “A good adviser doesn’t have to be scared of a [computer-driven] algorithm giving advice.”

That sentiment is echoed by Octavio Marenzi, managing director of Celent. “Most people who go to financial advisers or financial planners want human interaction,” he says.

Stephen T. Gorman, a financial adviser who oversees $100 million in assets in Hingham, Mass., isn’t worried about the emergence of account aggregation services. “This is a difficult business to commoditize,” he says. “Getting people to trust you really requires a one-on-one relationship.”

While companies such as Schwab, Fidelity, Morgan Stanley and Scudder Kemper are all launching aggregation sites aimed at advisers, ultimately it may be the companies that do not manage money that are the most successful in wooing advisers.

“Advisers are already worried enough about Schwab calling on their clients,” says Morningstar’s Mr. Phillips, which is considering offering an account aggregation service to the advisers with which it works. “If Schwab has even more information about their clients, they have all the more reason to be skittish.”

Of course, account aggregation is not without its problems. Chief among them is privacy. It’s still unclear how much access, if any, financial services companies will have to the information collected on their websites.

Most likely, it will be up to the individual consumer to decide whether the companies may look at financial statements or offer advice.