State Street Corp.s agreement to take a minority stake in ByAllAccounts Inc. and offer the Woburn, Mass., companys account aggregation services to State Streets investment advisers is a boost for the technology, which has yet to make much headway in the consumer market.
Account aggregation currently has fewer than three million customers worldwide, according to Celent Communications Inc. Boston-based State Street plans to use the ByAllAccounts software to offer portfolio analysis and aggregation to its private asset customers and investment managers, who can then, in turn, offer the services to their own clients.
Anne Tangen, who heads State Streets year-old Wealth Manager Services business, said investment managers who offer aggregation will have a lighter back-office workload so they can focus more on their clients. This is on top of the services core convenience of giving a consolidated view of client portfolios.
We believe this will help the investment manager make better connections and develop that loyal customer relationship, Ms. Tangen said.
State Streets investment manager customers began requesting aggregation service about a year ago, Ms. Tangen said. The $27 trillion held globally by wealthy investors is extremely fragmented, with each investment manager overseeing no more than 2% of those assets, she said and the wealth management business is growing faster than the mutual funds, defined benefit, and defined contribution plan markets combined.
Most customers that we have were looking at [wealth management] as their highest growth potential, Ms. Tangen said.
State Streets plans to offer aggregation through its investment manager clients could point to a new market for the technology. Most financial services companies offering aggregation target their retail customers.
More and more financial institutions are starting to look at the mass-affluent space, and thats a new thing for account aggregation, said Octavio Marenzi, a managing director at Boston-based Celent. The focus so far has been the mass-retail customer, he said, not the wealthy segment.
Aggregation stands to benefit from a second target market, since it has been slow to catch on with retail customers. A recent survey by the Atlanta consulting firm Synergistics Research Corp. found that of 1,000 Internet-using households polled, fewer than one-tenth were using aggregation. And just one in seven Internet users polled said they were very interested in the service.
Synergistics chief executive officer William McCracken said aggregation can be more easily sold in the wholesale market, because wealth management customers have more complex portfolios.
The more complicated it gets, the better case you can make for aggregation, he said.
Mr. Marenzi said State Streets move creates a lot more traction and legitimacy for aggregation.
The price of the State Street-ByAllAccounts deal, which was announced last week (though it was completed last quarter), was not disclosed. ByAllAccounts, which was established in 1999, and will operate as a separate company, collects account information from more than 1,200 financial institutions for the creation of personalized investment portfolios.
Celent estimates that the 2.9 million aggregation user base, which is mostly in North America, will grow to about 15.5 million by 2005 as the service gains a following in markets such as Japan, Australia, and the United Kingdom.
Celent analyst Ariana-Michele Moore said that having State Street as an investor will greatly benefit ByAllAccounts, which could ultimately provide aggregation services to other financial institutions served by the Boston company. She said State Streets interest in wholesale clients will also significantly help aggregation in the wholesale sector.
