Digital Transformation
Mar 20, 2018

AI: an important tool in wealth managers' asset aggregation toolkit

Algorithms that amass financial data for a 360-degree picture

Financial advisors and private bankers want to provide the most comprehensive, holistic recommendations they can to their high-net-worth clients. But to do so, they need to understand a wide range of investments — including held-away assets — spread across financial providers.

Achieving a 360-degree view of clients' assets has long been a holy grail. Until now, though, compiling a client's entire financial picture hasn't been easy. It meant gathering reams of paper statements and manually keying in data. This is wasted time that wealth managers might have spent directly advising their clients and also led to data-entry errors that could be significant.

Data feeds provide some of the crucial information—if someone authorizes a person to retrieve them. But the unstructured nature of this data has been a major impediment to gaining an overall perspective. And while web-scraping tools and services are available, they come with their own limitations.

All that is changing. Today, thanks to concepts like deep learning, computational linguistics, and natural language processing, machines can extract, interpret, normalize, understand, and provide actionable data and deep insights. This artificial intelligence (AI) is not the stuff of science fiction. It's real, realizable, and results-oriented. And it's transforming the way enterprises work with unstructured data.

To glean intelligent information, sophisticated algorithms can now parse and make sense of a hedge fund statement, a K-1 form, or an LLP partnership agreement. The process doesn't need millions—or even hundreds of thousands—of sample documents to work. The right AI engines learn from just dozens of samples and make the information available downstream in accessible formats.

Here's how AI processes unstructured data and makes sense out of it … all behind the scenes.

Cognitive Intelligence Framework

Asset aggregation—particularly in terms of alternative investments—is not an end in itself. It's a means to an end—and that end is better analytics or advice. Beyond basic account aggregation, other types of aggregation have an additional degree of difficulty. In fact, industry thought leader Michael Kitces alludes to six levels of progressively value-added aggregation.

The six level of account aggregation and personal financial management portals for financial advisors

What benefits can financial advisors and private bankers gain from aggregating, analyzing, advising, and reporting on held-away assets?

  1. A true 360-degree perspective that goes way beyond Know Your Customer (KYC): Meeting the basic KYC norms is a matter of regulatory compliance. However, for comprehensive and in-depth advice, there's nothing like a peek into a client's total financial situation. Armed with multi-custodial aggregation, advisors can understand the interplay of risks and returns across the entire portfolio, spanning diverse asset classes, multiple money managers, liquid and illiquid assets.
  2. Better investment management: An advisor can balance the global household level asset allocation with goal-specific or account-specific tactical allocations. Asset location can lead to better lot identification and tax-loss harvesting. Also, portfolio decomposition, performance measurement, and risk analytics across the client's assets showcase the value the advisor and the firm are adding, such as downside risk protection and tax alpha.
  3. Emerge as the first among equals: While a wealthy family does indeed have many financial providers, an advisor who can aggregate the entire portfolio and deliver holistic advice will emerge as the de facto quarterback of the client's finances. The stewardship, in turn, engenders goodwill and may lead to additional assets under management and high-value referrals.
  4. Off-the-charts operational efficiency and advisor makes because: Reducing manual work not only alleviates the drudgery of data entry but also makes advisors to more productive. They spend more time doing what they do best—advising clients and managing their money. AI-powered account aggregation also reduces the time it takes to reconcile, trace and fix the errors. Last but not the least, because digitization eliminates manual work resulting in low or no data errors and fewer compliance headaches.

If you're a wealth management firm serving high-net worth clients, you should consider exploring AI-powered technology for multi-custodial account aggregation in general and held-away alternative investments in particular. The technology—and the era of sophisticated algorithms—is here. They can deliver spectacular account-aggregation results.

About the author

Satya Iluri

Satya Iluri

Vice President, Wealth Management Consulting

Follow Satya Iluri on LinkedIn