States Issue Guidance on Adviser Use of Data Aggregation Tools

The Texas State Securities Board ("TSSB") and the New Jersey Bureau of Securities ("NJBS") issued guidance to investment advisers on the use of data aggregation services and third-party financial platforms.

The TSSB encouraged the use of these technologies to improve advisory services, so long as advisers fulfill their regulatory obligations. The TSSB identified a number of areas where advisers should exercise care:

1. Due Diligence. The TSSB said advisers must conduct thorough due diligence, including: (i) evaluating the nature and scope of the platform's functionality and data collection; (ii) reviewing agreements with both the service provider and the client; (iii) assessing cybersecurity protections; and (iv) confirming what records will be obtained.
2. Disclosures. Advisers must disclose any risks associated with data aggregation or third-party tools and must align their disclosures with those presented in the platform's user interface and client agreements.
3. Management of Accounts. The ordinary fiduciary duties apply equally to the use of technology in managing held-away assets, including employer-sponsored accounts. Advisers must ensure that recommendations are suitable and that fees reflect the actual level of service provided, particularly in comparison to alternatives available to the client.

While raising these concerns, the Chair of the TSSB also declared: "We believe that investment advisers in Texas are up to the task.”

The New Jersey Bureau of Securities issued its own investment adviser alert warning about the use of aggregation platforms. The NJBS identified a number of areas where investment advisers should exercise caution:

1. Data Privacy. The NJBS warned that advisers using unregistered third-party platforms to access clients held-away accounts with personal login credentials may compromise account protections, interfere with AML/BSA compliance and expose sensitive client data, potentially violating New Jersey fiduciary and ethical standards. 
2. Custody. The NJBS cautioned that despite some third-party platforms marketing themselves as custody-free, advisers must independently assess whether their access arrangements constitute custody under NJ law. The NJBS stated that if such arrangements allow withdrawal authority or designate advisers as authorized users, this may trigger custody obligations.
3. Fees. The NJBS raised concerns about advisers charging asset-based fees on held-away accounts—especially where advisers lack discretionary authority—highlighting that such fees may be deemed unreasonable under NJ laws. NJBS stated that advisers must ensure that any fees charged align with their fiduciary duty and do not unduly erode client returns, particularly when services provided are limited.

In contrast to the statement by the Chair of the TSSB, the New Jersey Investment Adviser Alert declared that "adviser use of these platforms may violate the NJ Uniform Securities Laws and associated rules and regulations."