What Is Aggregation?
Let me explain aggregation to you directly. In the futures markets, aggregation is the process that combines all futures positions owned or controlled by a single trader or group of traders into one aggregate position. But when we're talking about financial planning, aggregation is a time-saving accounting method that consolidates your financial data from various institutions.
I'm seeing aggregation become increasingly popular with advisors when they're servicing your accounts. It lets them discuss the accounts with you in a cleaner, more easily understood way before breaking them down into respective categories.
Key Takeaways
- Financial advisors and banks aggregate your information so they can easily produce a clear picture of your finances, and it adds an additional level of protection for you.
- Advisors and planners hit a wall when you don't give them full access, and they argue that it doesn't allow them the full-picture view needed to give accurate advice on your finances.
- Aggregation is beneficial for both parties, but the edge goes to the financial advisor, who may or may not see a gap in your servicing where they might be able to upsell a product or service.
How Aggregation Works
Financial advisors use account-aggregation technology to gather position and transaction information from your retail accounts held at other financial institutions. Aggregators provide you and your advisors with a centralized view of your complete financial situation, including daily updates.
As a financial planner, I handle both managed and non-managed accounts. Managed accounts contain assets under my control that are held by my custodian. I utilize portfolio management and reporting software to capture your data through a direct link from the custodian. It's crucial for me to have all your accounts because aggregating them without the complete collection would paint an inaccurate picture of your finances.
Non-managed accounts contain assets that aren't under my management but are still important to your financial plan. Examples include 401(k) accounts, personal checking or savings accounts, pensions, and credit card accounts.
My concern with managed accounts is the lack of accessibility when you don't provide log-in information. I can't 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 banks or brokerages. Because your privacy is protected, disclosing personal-access information for each non-managed account is unnecessary.
As a financial planner, I use aggregate account software for analyzing your total assets, liabilities, and net worth; income and expenses; and trends in assets, liability, net worth, and transaction values. I also assess various risks in your portfolio before making investment decisions.
Effects of Account Aggregation
Many aggregation services offer direct data connections between brokerage firms and financial institutions, rather than using banks’ consumer-facing websites. You give financial institutions your consent by providing personal information for the aggregate services.
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