Making Financial Management Easier

I’ve long been an advocate of concentrating your investments and financial matters at one or two mutual fund companies or at a discount broker. Consolidation makes it easier to know what’s in your portfolio and be sure your allocation is what you intend. Consolidation reduces procrastination, because you won’t be deterred by the time needed to gather all the information. That makes it more likely you’ll make portfolio changes when they’re needed.

There’s a problem with consolidation. We’re in an era when traditional, plain vanilla mutual funds don’t help meet your goals. But not all of the funds you should own are available through one mutual fund family or all discount brokers, or that might be available at a fee higher than you’re willing to pay. Owning all the investments I recommend and that you need can require having accounts at multiple institutions, leading to de-consolidation.

There’s a solution to this dilemma that will reduce your costs, increase your knowledge of your financial situation, and lead to better decisions.

It’s known as an account aggregator. It’s not a catchy name, but the solution is worth an examination.

Account aggregation is a software service that’s usually web based. You can use it either through some stand-alone web sites or it might be offered through your broker or mutual fund. The firms and software behind the stand-alone web sites also are likely providing the service offered through your broker or mutual fund web site.

The aggregator collects the information from all your financial accounts and consolidates the information in one place, usually a web site home page. You sign up for the service, enter information about each of your accounts (including access information such as passwords), and the service automatically collects the latest information from each account’s web site and presents it in the aggregation site. The service only works when you have online access to each of the accounts you want aggregated.

Through the aggregator you can examine a big-picture view that highlights the key facts of all your financial accounts. Then, you can dig deeper into the details of any account, including reviewing transaction details. You also can have the data presented to you in different ways, such as pie charts of your investment holdings, a balance sheet, or an income statement. You also might be able to prepare a budget, a retirement plan, and data for your tax return. Details vary from service to service.

More than investment accounts are covered. An aggregation service can gather information about your bank accounts, investment accounts, credit cards, mortgages, 401(k) plan, mortgage, and any other financial account for which you have online access. You also might be able to set up e-mail alerts, so you’re notified when a credit card bill is coming due or an investment hits a buy or sell price, for example.

Not all aggregation services are web-based. For example, some versions of Quicken personal finance software have the ability to aggregate all or most of your financial accounts and let you examine and manipulate the data on your desktop.

The web-based services now generally offer access through tablets, smart phones, and any other device you might have.

Security of course is a major consideration for this type of service. The services all say they have the top-level or bank-level security protection.

These services are “read only.” To make transactions or changes you have to log into the web site of the account involved or use whatever transaction method you’re using now. The web site and its employees also generally can’t access or move your assets.

These are the major aggregation services:

Mint.com: Intuit, producer of Quicken, purchased this service in 2009. The service is free. It says that banks pay it fees. Mint also has features on its site that help you compare and select credit cards, banks, IRAs, insurance, and other financial services. It’s probably the leader in direct-to-consumer account aggregation services.

Yodlee.com: It’s been around longer and offers its services to both consumers and to financial institutions. Its consumer account aggregation service is free, and it also offers a service for paying bills or transferring money.

PersonalCapital.com: This is the newest entrant to the field. It goes a step further than the other services. In addition to providing aggregation, Personal Capital wants to be your financial advisor. It has registered investment advisors and will offer custom portfolio recommendations or manage money for you. The aggregation services are free, and you aren’t required to use the other services.

You might run across a service called By All Accounts. This provides an aggregation service for financial advisors but it isn’t available directly to consumers.

Check any aggregation service offered by your bank, mutual fund firms, and broker. Compare its features and costs (if any) with the stand-alone services. A potential advantage of the stand-alone services is your future choices of financial accounts probably are more flexible. When you’re using the aggregation service through your bank or broker and like it, you might be less likely to change accounts even when you aren’t happy with the account overall.

I recommend you use only a well-known, well-funded service. You don’t want to wake up one morning and find that the service closed and the web site is down. There won’t be any risk to your money, but you’ll have to start over setting up an aggregation service.

Account aggregation allows you to spread your money among the banks, brokers, mutual funds, credit cards, lenders, and other providers that offer the best deal for you in a particular area. Yet, you’ll be able to view all the information through one web site as though it were at one institution. It’s the next step in reducing costs and increasing investment returns without spending too much time organizing your finances.

RW December 2011.