Morningstar's sale of ByAllAccounts to Pello won't close -- the latest mishap in the 'aggregation' category as Plaid seeks IPO and CFPB mulls plan to permanently allow data fees

Morningstar's plan to put ByAllAccounts under the ownership – and incubation – of a Salt Lake City startup is a no-go.

The Chicago fund tracker, data company and money manager sent out an email to RIAs, June 25, informing them of the change, RIABiz has learned from a source who asked to remain anonymous.

RIABiz first announced the deal on April 10. See: Morningstar moves on from ByAllAccounts -- sending it to a startup incubator -- 12 years after former CEO Joe Mansueto invited doubts by paying a premium for it after market already appeared commoditized

A Morningstar spokeswoman confirmed the transaction had been terminated, but said she could not elaborate on the circumstances because of a non-disclosure agreement with Pello.

“The previously announced acquisition of ByAllAccounts by Pello Companies will not proceed to closing,” the spokeswoman writes.

Mum on new buyer

Still, Morningstar is reassuring RIAs that ByAllAccounts is a unique holding. And, they should be insulated from deal collapse's fallout – not least because Morningstar itself depends on its smooth operation as a going concern.

“Morningstar is an internal client of the service and, like our customers, we depend on it,” the company's spokeswoman writes.

"ByAllAccounts will continue to operate as a business within Morningstar, maintaining consistent levels of operational support."

In a follow-up email, she said Morningstar is not commenting on whether it will seek a new buyer to replace Pello.

Morningstar uses ByAllAccounts data for its Direct Advisory Suite and Morningstar Investor services.

Small competitors disadvantaged

ByAllAccounts, a 27-year-old account aggregation software pioneer, has been owned by Morningstar since 2017, but since then, giant well-financed startups like Plaid and Finicity have marginalized or superseded pioneers like ByAllAccounts, Mint and Yodlee.

Adding to the uncertainty are proposed regulatory changes at the federal Consumer Finance Protection Board (CFPB). 

The board may permanently allow data providers, namely banks and brokerages, to charge fees after a set number of free data pulls. See: JP Morgan hustles Plaid for a deal in bitter fight over 'free data,' with Wells and PNC encouraged, while Fidelity, Schwab also force fintechs to pay up or pound sand as part of 'deeper battle.

That could make it more expensive to aggregate data – with smaller players disadvantaged, according to Will Trout, director of securities and investments at Boston consultancy, Datos Insights.

“The biggest structural risk is consolidation among aggregators. Higher data costs favor Plaid and Finicity/Mastercard and disadvantage smaller competitors," he explains, in an email exchange.

Plaid itself has struggled to keep momentum. 

Plaid secured an $8 billion valuation in a funding round earlier this year, and is now seeking an IPO, Bloomberg News reported on July 21. 

That's a fizzle considering that its 2021 funding round was valued at $13 .4 billion. A previous IPO attempt collapsed under pressure from the Department of Justice (DOJ). See: After shaking down Bain for evidence, DOJ files suit to stop Visa purchase of Plaid, a nightmarish turn of events for the $5.3-billion dream deal

Website shell

Pello is an incubator startup that had a plan to overhaul ByAllAccounts, according to CEO Cynthia Rojas Sejas in a press release early in Spring.

“ByAllAccounts built a strong and trusted data aggregation platform under Morningstar's ownership. In this next chapter, we are excited to focus capital and execution on accelerating innovation and delivering differentiated, best-in-class solutions in wealth management,” she said. 

“Our vision is to deliver to advisors, wealth managers, and wealth technology platforms the most comprehensive financial account data, and an expanded set of capabilities that extend beyond pure data aggregation. 

"Through deep relationships, including Morningstar, we are confident about powering the ongoing digital transformation of the wealth management ecosystem.”

Currently, the Pello website is mostly just a shell where a click on every tab lands on the same spare and brief landing page. 

“The acquisition of ByAllAccounts by Pello Companies will not proceed, [but] because of existing confidentiality obligations, we are unable to disclose the reason for the deal’s termination,” a Pello spokesperson explains, in an email.

Capital light

Pello's failure to purchase ByAllAccounts is also a setback for Morningstar's Wealth unit's “capital-lite” strategy that its CEO Kunal Kapoor is executing.

“With Morningstar Wealth, much of the focus in the last couple of years has been to ensure that we're focused primarily on a couple of capabilities. It's also far more capital light than it used to be,” says Morningstar chief financial officer, Michael Holt, in comments at the firm's annual shareholder meeting in May.

"A lot of the choices we made to exit certain areas were based on the fact that we wanted to exit capital-intensive parts of the business.

“We've pivoted and gotten focused on three core areas that we're very excited about: Investment management, the international wealth platform, and the individual investor segment," Holt concludes.