Is data consolidation, especially client data consolidation, holding your firm back?

The answer, whether you realize it or not, is probably yes.

Here’s why:

1. A majority of advisors say they cannot provide holistic advice and investment management based on 360 degree client views, according to a recent Impact Report from Aite Group, LLC.
   
   
2. However, high net worth investors are demanding more holistic service and using this as a key requirement for selecting and retaining their advisors.  
   
   
3. 33% of wealth managers in the NorthStar 2008 Wealth Management Trends Report state that providing better service is the number one most important way for both firms and their advisors to differentiate themselves from the competition.

In other words, if firms cannot consolidate client data, it’s unlikely that their advisors can provide holistic service. As a result, their advisors will be at a competitive disadvantage to those who have 360 degree client views.

What’s the issue?

The Aite Group’s Impact Report, "Holistic Wealth Management: The Data Consolidation Challenge," revealed that 26% of advisors distributing products from multiple providers are not happy with their current data consolidation approach and need to make changes over the course of the next one to two years.

It is becoming imperative for firms to improve their approach to data consolidation. There has been an explosion of products, but wealth management firms have increased their focus on distribution rather than product manufacturing or asset servicing. As a result, advisors have become the manual integrators of product and client information at the point of sale. All of this manual data collection and consolidation is taking away valuable time that the advisors could be spending with clients, generating revenue.

Aite listed several impact points, including:

• Holistic advice and investment management are commonly practiced in the ultra-high net worth segment, an environment where manual data collection and consolidation processes that support the advisors are justified due to high asset volumes.
  
  
• A survey of 78 registered investment advisors (RIAs) on the topic of data consolidation showed that advisors see account aggregation/data consolidation among the most important functionalities for their business.
  
  
• Only 43% of RIAs rely on their primary service provider for 100% of their business. Particularly in the areas of annuities, insurance and mutual funds, advisors use providers other than their primary one.
  
  
• Of advisors, 37% are currently not able to provide a single, consolidated client report to their wealthy clients.
  
  
• While 61% of RIAs use account aggregation/data consolidation applications, only 52% of RIAs are able to aggregate all products they offer in a single client view.

Why does it matter?

Providing holistic wealth management is a key differentiator for financial advisors. It allows them to address the client’s needs and goals in a holistic manner and thereby establish a closer relationship with the client. However, the burden of holistic wealth management without the necessary technology support will do more harm than good.

Lately, low levels of advisor productivity have led to many acquisitions in the wealth management industry. Firms that have efficient business and technology models are buying and integrating other players who have been slow to evolve and embrace new technologies. In particular, firms that are addressing the mass affluent and high net worth segments are dealing with pressure from clients to offer an ever-increasing level of service.

Aite Group Senior Wealth Management Analyst Alois Pirker, who presented the report, noted three distinct segments based on average assets under management (AUM) by investor: mass affluent $250k AUM Avg (>$1M), high net worth $2M AUM ($1-5M), and ultra-high net worth $30M (>$5M).

The Aite presentation included the following highlights:

• Since high net worth clients have 8 times greater assets on average than mass affluents, and ultra-high net worth investors have 15 times greater assets than high net worth investors, each segment really needs different tools and business models.
  
  
• Wealth management has to be holistic. "Holistic advice and investment management are key differentiators for advisors by enabling advisors to become trusted advisors," Pirker said.
  
  
• Wealth management requires the right technology platform. As Pirker says, “If you don't invest in a holistic wealth management, you are in trouble.”

What’s the solution?

Fortunately, a number of service providers exist that can alleviate data consolidation challenges. As outlined in the Aite report, some firms may choose to use a single provider to consolidate both internal and external data, or they may use a provider such as Private Client Resources (PCR) or Evare just to consolidate external data.

For a full list of the data consolidation vendors and their key capabilities, please purchase the Aite Group’s Impact Report entitled, "Holistic Wealth Management: The Data Consolidation Challenge," which is available at www.aitegroup.com.

Making the most of data consolidation

Once a firm has consolidated its data, wealth management firms need a strategy to ensure the data is usable by advisors. Ideally, the strategy will cover three main steps.

Step 1: Collect and validate all relevant data

Firms need to collect, normalize and test information for accuracy. As part of this step, information must be collected from the following sources:

• Internal and external data feeds
  
  
• CRM data
  
  
• Contact data (e.g., Microsoft Outlook)
  
  
• Indices/benchmarks
  
  
• Portfolio accounting data including accounts, insurance, instruments, liabilities, positions, prices, and transactions
  
  
• Risk data
  
  
• Research

Step 2: Package data into 360 degree client views

Firms need to collate and roll up data into meaningful portfolio and 360 degree client views. This step ensures the data is packaged so it can be used by advisors to provide holistic client advice. The step includes:

• Mapping accounts to clients
  
  
• Mapping instruments to strategies and products
  
  
• Mapping unit return values to client hierarchy views
  
  
• Adding entitlements to collected data
  
  
• Adding hearsay account data

Step 3: Distribute data where it is needed

Once the data has been packaged in a graphical client hierarchy or 360 degree client view, the information is ready for distribution. To make the most of the client data, most firms find it useful to distribute the client information directly into their advisors' desktops into client web portals and into client reporting systems. 

When client data is collected, packaged and distributed in this way, advisors can access and navigate client portfolios based on graphical, 360 degree views. This arms advisors with holistic advice and client-relevant reports.

 

NorthStar is one of the only providers that can collect, package and distribute data in the best-practice approach described above. To provide this solution, we work closely with data aggregation vendors who consolidate external data feeds.