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Financial Data Aggregation: A Path to Quality Financial Advice

How federal regulators can clear the way for fintech innovation

Aron Szapiro


There’s never been a better time to be an individual investor. Investors today have access to advice from highly sophisticated financial models to help them make the most of their savings. Yet, investors could have it even better if regulators made a few changes to help financial data aggregation technology reach its full potential.

What’s financial data aggregation? It’s a way for investors to digitally link all their financial accounts and have them seamlessly update in real time—instead of gathering paper statements and account balances from 401(k) plans, IRAs, and brokerage accounts.

Why financial data aggregation is critical

When an investor has access to data feeds from all his or her financial accounts, an advisor (or robo-advisor) can base recommendations on a holistic view of that investor’s assets and liabilities. For example, data aggregators provide the fundamental information behind recommendations that prepare investors for emergencies and other expenses. This helps preserve an investors’ retirement savings for their intended purpose—retirement.

Many U.S. investors who are saving for retirement spread their money across multiple retirement accounts, according to our analysis of the Survey of Consumer Finances. This fragmentation makes it even more critical for advisors to look across all accounts. Automating data collection helps solve this problem. It allows advisors to have the fullest picture of workers’ total retirement savings when recommending the right asset-allocation strategy and appropriate contribution levels.

Financial data aggregation also democratizes access to high-quality financial advice. That’s because digital aggregation is dramatically cheaper than manually collecting, entering, and updating data from various accounts every quarter. True, some advisors and clients are willing to do the time-consuming work. But by and large, this time could be better spent doing something more productive for clients.

How a fragmented regulatory system threatens the lifeblood of fintech

At Morningstar, we see innovation and promise in delivering financial advice to the masses, but it relies on access to data. This access is often restricted or under threat. Some financial institutions are opposed to individuals owning their personal financial data and sharing it with others—even if it’s to improve the advice they get.

When financial institutions do allow sharing with third-party financial data aggregators, they often supply uncomprehensive data. And sometimes financial institutions abruptly cut data feeds, leaving consumers who rely on fintech applications in the dark about their finances.

No one is forcing financial institutions to look out for their customers’ right to share data

Currently, seven federal regulators in the United States have authority over the broad world of financial data aggregation and fintech. Each regulator views the challenges with data aggregation very differently.

  • The Consumer Finance Protection Bureau can issue regulations to help consumers share their financial data with aggregators. But to date, the bureau has only released a nonbinding, high-level principles document that encourages the financial institutions under its jurisdiction to allow customers to share access to their financial data.

  • Other major bank regulators—the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve System—have generally focused on examining cybersecurity practices at financial institutions and third-party aggregators, rather than on promoting a common standard to make it easier for fintech firms to operate.
  • The Labor and Treasury departments have the authority to regulate the recordkeepers that run retirement plans. The departments could voluntarily cede authority to the Consumer Finance Protection Bureau, but government agencies are often loath to give up their turf.

Financial data aggregation already delivers many benefits, but it could be even better. If federal regulators would coordinate with each other and with the financial services industry, they could help ensure that individual investors have the chance to make full use of all that fintech has to offer.

Download our paper to learn more about selecting the right financial data aggregation provider.

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