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Account Aggregation Spreads, Despite Traps


NEW YORK - Offering account aggregation can be a good method of marketing a mutual fund family, however there are pitfalls that can undermine the benefits of the arrangement. That was the message conveyed by industry executives at a conference here earlier this month on mutual fund systems and technology sponsored by Marcus Evans of Chicago.

Account aggregation essentially combines information about several accounts of an individual investor, such as checking, savings, mutual funds, and 401(k)s, on a single website with a single password. The advantage for investors is a one-stop, full view of their financial account data. One of the advantages for the investment company is that it is a good marketing tool, according to Larry Lubin, CEO of FiTech of Toronto, a financial services online service company.

"The ones who provide the service first put themselves in a good position to capture some clients who might use their site or channel to see their holdings and it gives them an opportunity to solidify their brand," said Lubin.

The new service has grown in popularity over the last year and is expected to grow more rapidly in the future, according to William Spencer, senior vice president and director of marketing at Rafferty Capital Markets of White Plains, N.Y., which distributes the Potomac Funds. While only five percent of banks are currently using account aggregation technology, nearly 80 percent of investment companies are either already aggregating or planning to, according to Spencer. At the beginning of 2000, there were only about 10,000 account aggregation users. That number grew to 500,000 by the end of the year and is projected to reach 22 million by 2003, according to Spencer. In April, U.S. Bancorp Piper Jaffray reported that 90 million people will be using account aggregation by 2005.

One of the reasons those projections are so high is that advancements in technology are expected to make the service interactive, according to Spencer. Now, consumers can only view account data. They will be able to take action in their accounts and perform transactions sometime in the first half of 2001, according to Spencer.

"That [enhancement] will create terrific opportunities for us to create vertical strategic alliances," said Spencer. "Those who want to [approach the size in assets of the largest fund companies], but don't have the capacity of some of the larger firms, have to align themselves with companies around them."

The service can be more active, even without transaction capabilities. Financial calculators can be successfully incorporated into the service, according to Lubin.

"Where [account aggregation] can really add value is, once you have all of that information, if you can then tie in retirement and financial planning based on the asset values and balances," said Lubin. "Then it becomes extremely powerful."

Another reason aggregation is expected to spread widely, is that early last year, some financial institutions were filing lawsuits against companies that were offering the service and taking data off their websites, a process called screen scraping,' according to Spencer. Most of those suits have been dropped, however, and now companies that were suing are instead offering the service themselves.

"Typically, the aggregators have been the financial services portals as opposed to the major banks and fund companies," said Lubin. "What's happening now is that the major mutual fund companies and banks are saying We've got to get into this. We're the ones who should be providing the service.'"

Other advantages of the service are that it causes visitors to spend a long time at a site and it provides both the consumer and the company more information than both would have access to without the aggregation, according to Spencer.

"With account aggregation, there is frequent visitation and the user stays there a very long time," said Spencer. "It increases customer retention and the value you bring to a customer. You're bringing data to them that doesn't cost you energy in providing it. It also gives you a better overall picture of the [potential] profitability of each customer."

However, there are some problems with bringing information to a consumer that is not that of the company providing it.

"Once you put yourself in the position that you're going to provide [information], you're setting a certain expectation," said Lubin.

The host has to deal with site security and accuracy issues. If the information on another company's site is not up to date, that will create problems for the host company, said Lubin.

"If there is a problem, whether it is a problem of the service provider or not, it is still perceived as a problem of the service provider," said Lubin. "So, if not done well and with these considerations, something that started out to be a really good thing turns out to be not so great."

There can also be servicing pitfalls with account aggregation even without blatant problems or mistakes on company sites.

"Customers will call up the host company and ask questions about another company, another account," said one executive. "You can't be customer service for every company on the site. It's a big problem."

"It's a difficult balance," said Lubin. "You have to know what you can realistically provide."