The Status of Open Finance for Wealth Management

The unintended consequence of the initial scope of the final rule establishes legally permitted disparities in the consumers’ access to and use of their covered data. While the Personal Finance Data Rights rule is intended to cover all financial data, the approach to covered institutions and covered accounts is problematic, as its phased implementation does not yet consistently extend to non-banking or credit card accounts. As industry standards for data sharing continue to evolve and implementation accelerates, 

Data providers, authorized third parties, and intermediary technology providers must be ready to fully support all financial data ahead of regulatory mandates.  

A primary area of disparity is in wealth management, where investment and retirement account information is essential and where firms often rely on third-party connectivity. This is a complex ecosystem given the variety of account types and activities, as well as the very personal and impactful behaviors of consumers acting as savers, planners, and investors, not to mention as trustees or beneficiaries. Compounding the complexity are the roles of financial professionals whose services exist outside the 1033 third-party authorization model. While many parties are aligning to emerging standards, such as Financial Data Exchange (FDX), adoption still remains uneven across the ecosystem.

As we’ve all experienced to some extent, our financial opportunities and needs, and therefore our behaviors, change over time. Depending on our starting situation, we may have an orderly progression of education, employment, starting and growing a family, as well as retirement. However, we may not choose or be able to follow this path, or we may have it upended by an unexpected event. 

There is a substantial body of financial advice research on preparing for and managing disruptive events and “chaos cycles,” which stand in stark contrast to an orderly life progression. Macro forces come into play as well. We are entering the largest intergenerational wealth transfer experienced in the modern era¹ as the last of the baby boomers reach retirement, with millennials being one of the prime beneficiaries. These “digital natives” will no doubt favor technology tools for planning and advice, which we know requires the data to be uniformly formatted and reliably sourced.

Within the ByAllAccounts Financial Data Network, we connect to data providers beyond traditional banking, including custodians, recordkeepers, insurance and annuity providers, and fintech platforms across financial services. Some of these firms have already built APIs for consumer-permissioned data sharing, as they understand the importance of a secure and efficient data aggregation channel for their customers.

Across all types of providers, we currently see that the vast majority of our open finance/banking API account volume is an account type other than a retail banking account. Specifically, 38% are retirement accounts and 7% are insurance or annuity accounts. And 93% of this non-banking account volume is currently using industry-standard formats for data. However, there is a lack of uniformity across these providers in data format and API behavior that should be addressed in the spirit of the rule ahead of future rulemaking.

In the wealth space, correct and complete data is essential to deliver smart data outcomes and reduce risks. Not just so an investor has a correct view into their own financial wellness picture, but also to ensure so they are getting appropriate and compliant advice from their financial professional. Key areas to address in current and future implementations include account typing, tax lots, and delegate users.

Uniform account typing and properties ensures that complete covered data can be provided for each account. While providers are generally making this data available, they are often using customizations to account for discrepancies in coverage between their financial products and the industry standard format. Customization makes it harder for recipients to digest and introduces greater possibility for mishandling due to interpretation errors. Improvements to the standard approach will provide more uniformity in the data schema, reducing complexity and increasing reliability.

Tax lots, including both open and closed lot data, are important to wealth management use cases. We observe spotty data and disparities across providers with usage and interpretation of the cost basis fields due, as complete tax lot reporting is not fully adopted by many providers. Ideally, providers will deliver full tax lot record details in a standard format ahead of a regulatory mandate.

Delegate authority is legally established outside the rule. There are different types of agency relationships including advisor, trustee, or guardian. While many financial data providers accommodate such delegated authority on their websites, there is not a common method to capture these relationships via their APIs. Here also, evolved standards ahead of regulation will further the adoption of consumers’ Personal Financial Data Rights in meaningful ways.

At ByAllAccounts, our data network enables investors to safely access and share their financial data with advisors and apps they’ve chosen as best suited to help them navigate their complex financial lives. To learn how we can generate better outcomes for your clients, please visit the ByAllAccounts product page.