In this age of the cheap and fast robo-advisor, traditional advisors have to be smart and agile to win new clients and score more asset management opportunities.
These advisors will need intelligence. That's where data aggregation comes in.
With the deeper and more meaningful insights "big data" can provide, advisors can get the edge they need to compete with their robotic adversaries. And many wealth management platforms are teaming up with data aggregation firms to deliver that edge. Fiserv snapped up CashEdge in 2011. Then Morningstar swooped in for ByAllAccounts in 2014.
But the biggest move yet in the data aggregation space came this past August, with Envestnet's $590 million purchase of Yodlee. (See our story on the 5 Reasons Why the Envestnet Acquisition of Yodlee Was Brilliant.)
Will the Envestnet-Yodlee partnership work? That's one question many in fintech are asking as they await the closing of the deal.
Aaron Klein, CEO of Riskalyze, thinks the combination could pay off—with the potential of becoming a game changer for the wealth management technology industry.
"My theory is Envestnet has a strategy around using the Yodlee network data to build a sales intelligence product for premium advisors," Klein says in an interview with Wealth Management Today. "If Envestnet could give those advisors an accurate assessment of opportunity size prior to the prospective client even using aggregation, that could be a big competitive advantage."
Riskalyze offers complementary technology to Envestnet's suite of wealth management solutions. The Riskalyze software helps advisors better assess client risk and engineer customized portfolios. And personalization is what clients want—most RIAs say their clients choose them because they can offer personalized investment solutions, according to a 2015 survey by TD Ameritrade Institutional.
Riskalyze is also looking to data aggregation to enhance the value of their platform. The firm recently formed a partnership with Quovo, a financial data aggregator who collects, manages and analyzes investment account information from sources specific to the money management industry.
Data as a Common Language
Data aggregation promises to open a door for advisors by giving them deeper knowledge of how clients manage all of their finances—from checking account transactions, to loan and insurance payments, to assets in other savings and investment vehicles.
Of course, an aggregator is only as good as the data it collects and shares. Data needs to be valid, clean, relevant and broad-based for the aggregation to be useful for a platform or to the advisors who use it.
For Riskalyze, partnering with Quovo makes sense because of the depth and quality of their data. Quovo offers Riskalyze a deep pool of investment account data from valuable industry sources—retail brokers, custodians, mutual fund families, and more.
But the quality of the data is also of critical importance to Riskalyze. Inconsistent or incomplete data would be useless to an advisor looking to present clients with a clearer picture of their risk profile or show how their current portfolio is misaligned with their actual risk tolerance.
Quovo solves the problem of data variability with a sophisticated process for cleaning and normalizing data, so that in their words the data becomes "one common language".
Most financial firms follow the Open Financial Exchange (OFX) standards for sharing data among tech providers. Banking and credit card transactions are generally simple, so consistency tends to be less of an issue. But investment account transactions are often more complicated and data can be reported in different ways.
This variability leads messy or spotty data. Quovo cleans and normalizes the investment account feeds they collect through matching with relevant and comparable reference sets, screening for errors and outliers, and running smart checks to fill in gaps from transactions like stock splits and mergers.
For Riskalyze, starting with clean and consistent data means the advisors using their platform can present more accurate risk analyses to clients. They'll also have more confidence in their ability to win new relationships and attract more assets under management, using the Riskalyze platform as part of their sales growth strategy.
A Little "Co-opetition" Among friends
If Envestnet does plan to implement a robust sales intelligence strategy, as Aaron Klein of Riskalyze believes, those details likely won't come out until after the deal with Yodlee goes through. Envestnet would not want to tip their hands to competitors on their plans for rich data mining capabilities they get with the Yodlee purchase. Nor would they want to give other fintech and data aggregation firms a jump on building similar solutions before the Yodlee deal is finalized.
And what's to become of the existing relationships they have with other fintech platforms who license Yodlee data? Envestnet faces a choice—continue Yodlee's existing data-sharing agreements—many of which are competitors with Envestnet's own offerings to advisors—or shut off this spigot of revenue.
Stopping this revenue stream may make Yodlee's $590 million purchase price harder for Envestnet to swallow. Also, it's not uncommon for fintech firms to engage in a little friendly "co-opetition"—a healthy blending of cooperation and competition that works to both firms' benefit.
Then again, licensing Yodlee's data pool to competitors—even for the revenue it provides—may not be strategically sensible as Envestnet looks to build its own unique intelligence platform.
"If I am wrong about the sales intelligence strategy," Klein says, "it's not a game changer, because the same technology is available and pricing barriers are coming down across the industry.
"But if they are going to use the broader network data to build a sales intelligence product, that could be a game changer that only a handful of companies could match."
The partnership of Riskalyze and Quovo offers similar potential. Success will depend on how both firms bring the strategy to market. The commitment to data quality holds the promise that this arrangement will bring advisors the intelligence and agility they need to keep ahead of the competition from robo-advisors.