Learn About Householding Accounts in Finance
In census data, a household typically consists of individuals with a shared residence. In financial services, households are groups of related accounts, which may or may not have the same mailing address. They may be a mix of individual accounts (or retail client accounts), business accounts, and accounts for entities such as trusts or estates.
The Rationale for Householding Accounts
Banks, securities brokerage, and asset management firms often give clients discounted fees, enhanced money fund rates and/ or based on the size of the total household relationship. Thus, developing and maintaining logic for grouping accounts into client households is an important activity. Financial services companies, especially banks and securities brokerages, are hampered in market research and customer analysis by databases that are organized by account, not by client or client household.
In dealing with high net worth clients, methodologies that can identify their related accounts automatically, prior to confirmation by the clients themselves, often is a means to impress such people with the sophistication of the firm, and thus facilitate further asset gathering from them. By contrast, asking such people to perform such identification is often feared as an admission of ignorance on the part of the firm.
The precise definition of a household varies by firm. Developing the logic for grouping accounts into households is a joint effort between marketing and information technology.
The accounts belonging to a household each may have a different tax identification number (or TIN). A person's TIN is a Social Security number (or SSN), and thus each person in a household (e.g., husband, wife and children) will have a unique TIN. If a household member owns a business or is the beneficiary of a trust or estate, each of those will have a unique TIN.
The process of associating multiple accounts with an individual or a household is complicated by several factors. For example, household members may use different surnames. Business, trust and estate accounts will have different names also. A household may use several addresses, such as for a permanent home, a vacation home, a business address or a post office box. Variations in spelling (such as the use of initials or abbreviations) across accounts also can complicate systemic grouping of accounts into a household.
Manual Intervention Is Needed to Group Accounts Into Households
Manual intervention by financial advisors and bank branch managers often is needed to group accounts into households. However, the process can be complicated if a household has accounts at multiple branches or offices, served by multiple financial advisors or bank managers who are not aware of the client's dispersal of accounts. Intelligence provided through contact management systems also can be extremely useful in linking related accounts together.
Ultimately, however, the best source of information necessary for the complete and accurate householding of accounts comes from the clients themselves. After all, they are the beneficiaries of price breaks and service enhancements that come with higher tiers of financial assets or revenues generated, and thus they have clear financial incentives to make sure that all their accounts are included for these purposes.
The Rules for Household Accounts Can Vary Greatly
How stringent or liberal the rules for householding accounts are can vary greatly by the firm. While combining the accounts of a married couple tends to be typical, some firms will add in only the accounts of minor children, while others will allow those of adult children to be added. Or, perhaps, the inclusion of multiple generations of lineal descendants will depend on one generation's having introduced the others to the firm. For example, an adult child may have brought his or her parents' into the firm, resulting in all of them being household for pricing, service, and analytic purposes.
Indeed, given the likelihood that children will inherit all or most of their parents' assets, householding their accounts together while they are all still living has a certain logic to it. This is true not only for analytic purposes but also as a mechanism to encourage the retention of inherited assets in the same firm.