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A Perfect Union?

Combining wealth management with data aggregation may be the next big trend in financial-services technology.

Combining wealth management with data aggregation may be the next big trend in financial-services technology.

When Harold Hughes, senior vice president of Legg Mason's Private Client Group said "the next killer app" would be one that added a wealth-management component to aggregated financial data, vendors took notice.

In the past six months vendors and analysts have been busy developing and studying this growing niche of financial-services technology, hoping to cash in on Hughes' prediction. For example, Celent Communications, a Mass.-based consultancy, recently issued a series of reports focused on just this area. Also, announcements coming out of the vendor community, such as the partnership formed between aggregation-provider Adhesion Technologies and wealth-management-provider netDecide indicate the trend may be real.

But does a trend in the vendor community mean much if financial institutions aren't buying?

When asked what his firm was doing in terms of wealth management and data aggregation, Eric Stubbs, managing director and co-head of the Wealth Management Services Group at Bear Stearns, replies, "nothing."

Here's why.

"My primary concern with moving quickly into aggregation is the issue of data accuracy," says Stubbs. "Until recently, most of the technology had bugs because it was based on screen scraping. If you can get a direct feed from the custodian, you're better off from an accuracy standpoint, so I think that has to be a priority."

Celent Communications Senior Analyst Pamela Brewster agrees. She says that clean data is the key to effective wealth management. "Without good, clean data, you can't give good advice, no matter how effective your wealth-management platform is," says Brewster.

That's why established data-aggregation companies, like Calif.-based Yodlee, are moving from a screen-scraping approach to direct server-to-server connections. Anil Arora, chief executive officer and president of Yodlee, says that, by the end of the year, 25 percent of his company's 7,000 feeds will be direct connections. By the end of 2003, he says, that percentage should be up to 50.

"We were 100 percent screen scraping but that does not scale. The legacy of screen scraping is that it's highly unreliable. Now the technology is so sophisticated that it is very accurate, but the issue is still scalability," says Arora.

Yodlee, says Arora, is also getting on the aggregation/wealth-management bandwagon, as the company plans to release its first such offering in the first quarter.

The economy is also playing its part in keeping firms from embracing the fused applications. Stubbs says that "a lot of options are underwater right now," meaning less discretionary dollars are available for new projects.

Stubbs says that not having confidence in the accuracy of aggregated data means his firm would have to build an infrastructure to normalize, scrub and cleanse the aggregated data, no matter how clean the vendor promises it is. That is effectively a prohibitive proposition at a time when money is scarce. "I think this is a larger task than a lot of people think," he says.

Though some firms, like Bear Stearns, are holding out until other priorities are satisfied or until purse strings are loosened, some are saying that institutions will only be able to ignore this area for so long.

Jim Scurlock, senior manager for the financial-services industry with Cap, Gemini, Ernst & Young, says that the economy has combined with pressing initiatives, such as the USA Patriot Act and business-continuity-planning requirements, to push wealth management and data aggregation into the background. Nonetheless, he contends, developing such capabilities is absolutely critical.

"Aggregation is mandatory," says Scurlock. "It is simply a utility and doesn't add a lot of value, in itself, but it's stakes to play. Without aggregation, you don't get to play."

But more than a financial consideration, Stubbs says that Bear is not after the mass-affluent client segment - the group most effectively wooed with the aggregation and wealth-management tools currently hitting the market. He says that Bear, which targets the high- and ultra-high-net-worth customer can afford to have a more hands on approach.

"We don't have the problem of having to coordinate 3 million accounts. We have the problem of having to coordinate a few tens of thousands of accounts, so we can serve our clients interests - in terms of getting a total picture - much more manually," says Stubbs.

Brewster says that deciding which client segment a firm is going after is the first critical step in developing a wealth-management and aggregation strategy. Those segments could be general retail investors, mass affluent, high-net worth or ultra-high-net worth. Serving each segment, she says, requires specific tools, which become more sophisticated as one goes up the food chain. Then a firm should work hard to develop a comprehensive request-for-proposal to begin vetting the vendor community. Finally, says Brewster, a financial institution must have prospective vendors demo products and furnish reference lists before making any decision.

"Institutions should also get their advisers involved in the decision-making process," she says, "because if the adviser isn't going to use it, then it's useless."

Additionally, Cap, Gemini's Scurlock says that any aggregation/analytics system must be integrated with a firm's mainframe, otherwise the advisers and brokers will simply be staring at isolated workstations. Integrating with the mainframe will allow existing customer information to populate the new application with CRM-type data which is vital to managing client relationships.

"I have talked to many financial institutions that are frustrated that they have been sold something which sits on the desktop and has no connectivity to the mainframe," says Scurlock. "To know what that's like just take the plugs out of the back of your computer and you'll have a 1970s stand-alone desktop with connectivity to nothing."

And that, says Scurlock, is not a winning formula for executives who are trying to turn transaction-oriented brokers into relationship-focused wealth managers.

Sander Bleustein, director of planning and executive services with Morgan Keegan, says that his firm's plans for bringing aggregation to wealth management are on hold due to budgetary constraints. However, he notes, even if cash was flowing, his brokers need to change the way they think about handling their clients if Morgan Keegan is to be effective in embracing the new model of wealth management.

"Our firm is behind the curve when it comes to wealth management," says Bleustein. "Our advisers need to be woken up. Right now we can't get them to sit down with clients because they have a transaction mentality."

Scurlock says that getting brokers to rethink their role is difficult and requires retraining, new compensation packages and just hard work. "Many are already well compensated, so if you give them more to do they say they were never trained for it," he says. "You have to come in and work to retrain them and get them to work as a team because the days of stock picking are behind us."

With that in mind, Scurlock says that it's critical firms have a solution in place by the first quarter of next year or they will risk being left behind in the race to capture an estimated $10 trillion of available assets. He adds, "Firms need to get the software and connectivity in place immediately."

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