April 14, 2009
Implications for using account aggregation systems
Advisors who manage and report on clients’ held-away assets must always be conscious of custody issues, particularly when advisors retain client login credentials. If your firm stores client credentials for a website that allows a change to the address of record, it may unknowingly be subject to the all the requirements of custody, including custody with physical possession, described above.
Advisors must also be able to prove that there are controls to maintain the security of client credentials saved in the advisor’s systems. Credentials should be kept in password-protected and encrypted formats and should only be available to appropriate individuals, including the Chief Compliance Officer and designated trading personnel.
As an alternative to obtaining the client’s credentials, some account aggregation systems, such as ByAllAccounts, give an advisor the ability to allow clients to enter credentials for online-accessible accounts directly into the account aggregation engine, without exposing those credentials to the advisor. Using such a solution, your firm then has read-only access to the client’s account information, as it has been aggregated from the online sources, without having online access to the accounts themselves. The custody issue and the associated compliance requirements are thus eliminated.
Advisors need to understand custody and its implications before implementing an account aggregation system. While these requirements can be onerous, they can be sidestepped:
- By using custody websites that provide read-only access; or
- By using custody websites that do not provide trading or cash movement functionality; or
- By requiring that clients enter login credentials themselves, and not taking possession of these credentials;
”Custody is an important concern,” says Simon, “but the issues it poses are clearly outweighed by the benefits of an account aggregation system.”
* Bill Winterberg, CFP®, is a Portland, OR-based operations and efficiency consultant to independent financial advisors, and blogs at FPPad.com.
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