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The Next Advancement in Aggregation: ‘Householding’

Industry Trends and Research

So says a new report from Cerulli suggesting that, as fee-based financial advice combined with financial planning becomes the industry standard, financial advisors must find new ways to differentiate their practice.

And one way in which they can do so is to aggregate client relationships on the household level, rather than focusing on individual account-level relationships, according to The Cerulli Edge—U.S. Advisor Edition, 1Q 2023 Issue

In fact, Cerulli expects that “householding” will become more common in 2023 and beyond, as it gives financial advisors greater opportunities to customize portfolios and can allow for more efficient tax outcomes.

For wealth managers, streamlining and consolidating wealth management platforms is a significant priority for 41% of managers this year. But the potential benefits of householding and the stronger outcomes it can create seem to be apparent. According to Cerulli, nearly three-quarters of wealth managers say consolidating to a unified managed household (UMH) is a priority for their firm moving forward, with 22% saying it’s a “significant priority” and half (50%) reporting it as a “moderate priority.” This comes as wealth managers continue to shift toward fee-based assets and away from transactional brokerage relationships and consolidate accounts from multiple sources, the report adds.

Cerulli further explains that the UMH moves beyond the account-level aggregation of the unified managed account (UMA) and considers not just the client’s financial picture, but also that of their entire household, taking all assets, accounts and holdings from a household and coordinating them to ensure the best possible financial return across the household. The UMH also considers income from less traditional sources (e.g., Social Security) to create a more complete revenue picture.

“Householding gives financial advisors an additional opportunity for customization best suiting the needs of their clients while adding the tax savings clients desperately crave,” explains Matt Belnap, Associate Director at Cerulli. “Advisors who can implement a household level view have a better chance of standing out from their peers and retaining client assets,” he adds.

Asset Location and Reframing

According to the report, the crux of the UMH is asset location, algorithmically determining the best place to allocate client assets. “This builds upon something many advisors already do in an ad hoc manner; for example, placing income-producing securities in qualified accounts to minimize taxes,” notes Belnap. “By systematizing this process, and by combining that with other strategies such as tax-loss harvesting and intelligent rebalancing, householding through a UMH can create better outcomes for clients.”

That said, viewing the client relationship on a “household level” rather than on an “account level” requires a certain level of reframing and reconsideration, for both the financial advisor and the client, the report further emphasizes. Many advisors, as well as clients, are used to a certain style of performance review, centered on how an account performed compared to the benchmark. When the relationship is focused on the account level, this makes sense, but once consolidation and householding occurs, this account-level attribution becomes far less meaningful, Cerulli notes.

As such, the firm believes that asset managers, and especially distribution teams, can assist with this transition. “Rather than focusing merely on performance, which remains important but increasingly is commoditized, asset managers that can help advisors understand how their strategies fit into a financial plan, and how to communicate that information to clients, have an opportunity to win assets and strengthen relationships,” the report stresses.