Aggregation - Explained
What is Aggregation?
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Table of ContentsWhat is Aggregation?How Does Aggregation Work?Account AggregationImportance of Account AggregationEffects of Account AggregationAcademics Research on Aggregation
What is Aggregation?
Aggregation refers to an act of grouping items or things as a whole. This term can be used in various contexts, disciplines, and industries.
- Data Analysis - In data analysis, aggregation refers to the compilation of information which is used to create datasets for analysis purposes.
- Futures Markets - In futures markets, aggregation refers to the combination of all futures positions held by an individual investor or a group of traders.
- Accounting - Aggregation can also be used in accounting as a method in which financial data and reports from different entities are consolidated into one.
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How Does Aggregation Work?
Generally, aggregation refers to an act of grouping different items into a whole. Common words associated with aggregation are combination, compilation, and gathering. Aggregation is popular among financial advisors, these professionals use this method to a group of the investments of positions help by a single investor in the financial market. Individuals who specialize in aggregation are called aggregators. They are helpful to companies, investors and financial advisors.
Account aggregation is simply the harmonization or consolidation of different financial data belonging to an individual or an institution. Amount aggregation is common in portfolio management, it entails financial managers grouping all assets held by an advisor on behalf of a client. In certain cases, aggregation entails the consolidation of managed and unmanaged accounts belonging to an investor or an organization. While managed amounts are those handled by a financial advisor on behalf of a client, unmanaged accounts are not under the control of an advisor such as retirement plans, employees savings accounts, pension funds and others.
Importance of Account Aggregation
The importance of account aggregation include the following;
- Aggregation is an accurate method of getting all the positions or assets owned by an investor or a firm.
- It offers a convenient way of identifying items in a group.
- Aggregation facilitates a proper analysis, whether Financial Analysis or data analysis.
- In financial planning, the liabilities and net worth of investors can be realized.
- Aggregation also helps in assessing the level of risks and returns an investment.
Effects of Account Aggregation
Account aggregation is important to financial institutions, brokerage firms and financial planners. Account aggregation helps in arranging data points of information into a group that can easily be used in account reporting and analysis. However, a disruption in the database can create issues for information of clients that have been aggregated by these firms. For instance, if a banks website is hacked, customer's information can be used by third parties for activities that are not in the interest of the customers. A break down in data flow can also cause customers themselves not to have access to their information collected by a firm, bank or institution.