These consulting services are a differentiator. Website: BNY Mellon/Pershing. As you read this article, I invite you to browse through the profiles of alternative RIA custodial platforms, looking for a cultural fit, more advanced technology, or a platform that will give a firm of your size the same service levels that the professions largest custodian often only reserves for its largest RIA relationships. All of the work that the advisor is doing inside of RightCapital is surfacing in our client portal and mobile app in real time, says Wenk. Comparing Small RIA Custodians Beyond Schwab And Fidelity We decided that we wanted to be very selective with who we would take on as clients. We send clients a link and the account is established and the assets moved within a day or two. Trading platform: NetX360+ RIA As most advisors now know, the sudden surprise introduction of a zero-commission pricing model for stock and ETF trades some years back was driven primarily by competition in the retail space. In a presentation to investors from 2019, Schwab reported a 30% custody market share. Website: Altruist, The brash newcomer platform on this list is something called Altruist, based in Venice, CA. The same formula has been working well for us.. Like the others, the company doesnt have a retail division; nor does it offer tiered service which favors larger RIAs over smaller ones. Platform rating in latest T3/Inside Information software survey: 7.65 When you have big companies like Schwab, it is really hard for them to turn that technology ship around, he says. We were building out the new platform, and then Morgan Stanley came in and said, heck no, were not going to send these branch clients over to independent advisors, says Watson Were going to send them to our captive advisors, and then were going to sell our packaged products.. Detectives from the Hollywood Police Department took Ariel Cardahn Paul into custody on Sunday Tyrone Ross, who ran an RIA before co-founding OnRamp Invest to help advisers integrate digital investments, noted that as much as 70% of the trading activity at an advisory now takes place in portfolio management software. These data show the market share of the top four custodians among major accounts rose slightly to 36.1% at the end of June from 34.6% two years earlier. Heres an interesting challenge. Before we went fee-only, clients would pay a markup on every bond we purchased on their behalf, but we didnt charge a fee. There are actually two aspects to the platform which are different from what advisors get from the larger custodian competitors. 2022 2021 2020 2019. We moved from a markup to a fee, he continues, so it was the same yield., In the initial negotiations, Telemus secured a commitment that Pershing would allow the company to shop its existing relationships and do bond trades away from the Pershing bond desk something TD Ameritrade and Schwab were reluctant to allow. The software lets clients digitally connect their bank account to their investment account, and automate contributions to their investment accounts directly; they would issue standing instructions to invest $25 or $100 a month. it comes to RIA custody, how Holly Deaton. Lawton also appreciates the advanced technology built into TradePMRs Fusion workstation. How to Start a Hedge Fund, Your Own RIA Firm (Part II) Early in the discussions, EAS will examine the advisory firms book of business and negotiate a custom fee schedule. Entire teams are working offshore, 12-14 hours a day in their different time zones, looking at advisors data so that by the time people wake up in the morning, its finally accurate, says Wenk. E*TRADE was the first to offer the sleeve trading capability, TD has started to develop it, and Equity now has it as well., With assets in the multi-billion-dollar range, Toth is accustomed to getting a dedicated service team wherever the firm custodies assets. Whether or not you use Altruist as your custodian, the software itself is impactful, says Windle. They ask me about my family. The platform offered all the features of the competing technology, but navigating through all those options was confusing. The firm can opt for zero commission trades if EAS can make the relationship profitable on cash balances. But the steady growth is notable since many observers speculated that the 2019 merger of Schwab with TD Ameritrade could provide openings for new custodial competitors, as the combined company would have difficulty maintaining service levels, particularly for smaller RIA clients. Brand awareness, he says, is something we have to work on., That said, Watson says that in the past, the custodians would stay in their own lane; they werent supposed to be a visible part of the relationship. Thats not the most scalable, and its not always accurate. Beyond Schwab itself, and #2 RIA custodian Fidelity, the alternatives range from Pershing Advisor Solutions, which was, even before the merger, the second-largest independent custodial option when measured by its combined RIA and broker-dealer assets for which they provide custody and clearing services, to newcomer Altruist, which (by virtue of its newness) offers the most tech-advanced software platform. Most custodians offer some form of practice management advice, but during the time when Mark Tibergien was running what was then called Pershing Advisor Solutions, the firm took this service up a few notches. We were initially built for solo firms with a single user, and if you had more people, they all had the same permissions, Wenk explains. Another differentiator between custodial platforms is their pricing structures. And, as mentioned earlier, because Axos is a consumer bank, advisors can tie into its services for mortgages, high-yield savings accounts, or the online checking accounts. In the past, it was easy for the institutional platforms to be fat and happy, he adds. Platform rating in latest T3/Inside Information software survey: 7.05 How To Contribute The new software dispensed with paper and even the actual forms themselves, would auto-fill and integrate, and most importantly automatically check account opening and other electronic forms for Not-In-Good-Order (NIGO) problems. Some readers are likely to be surprised at how much competition is out there, and how popular those competitors are with the advisory firms that are using them. The lack of a retail division, and especially of direct competition with advisors, is another plus. I looked at Schwab, TD, and Scottrade, he says. And three: it is a partnership relationship. Pollock was unusually experienced in custodial platforms, having custodied in his career with Paine Webber, First Michigan, and Pershing. This optionality can give fee-conscious advisors (and their clients) the ability to choose what makes the most sense for them. Bob Veres is the editor and publisher of Inside Information, and contributing editor and columnist for Financial Planning magazine. So he uses Altruist software with the Altruist platform as his client reporting/rebalancing program on the larger platform. Advancing Knowledge in Financial Planning, IAR CE is only available if your organization contracts with Kitces.com for the credit. And every firm that decides to shift to one of the alternatives makes the marketplace that much more competitive. Robb and his management team, he adds, have done a phenomenal job of continuing to grow their services and the firm itself. Here, too, Altruist is addressing pain points. There is a small markup on cash holdings Wenk estimates that it is under a basis point a year but he also says that, due to the fractional share feature, the total cash across all client portfolios is under 4%, often just 1% or so. If you call in here, we dont route your call based on how much assets you have. And that is before we do the ACATS.. Im so glad that Ive got it all on Liberty, where it's all at the custodian, where I can view my trades and portfolio performance and fee calculations all in one place., Advisory firm relationships: 1,300 If you do not know who your group administrator is you may contact [emailprotected], October 24, 2022 07:06 am 0 Comments CATEGORY: Practice Management. In the minds of many observers, the Schwabitrade merger that seemed to diminish competition in the RIA custodial space might end up increasing it, by ultimately driving more interest in smaller, more personal custodial platforms, whose scale could rise dramatically in the next year or two. Option one is for the advisory firm to continue to pay trading costs as they had been before the zero-commission announcement. We integrate with RightCapital [planning] and Wealthbox [CRM] today, and we chose them because they also have a fairly modern infrastructure, says Wenk. If BLB&B represents one of the larger firms with a TradePMR relationship, Bischoff Wealth Management Group in Greenwood, IN, is on the smaller end of the spectrum, staffed by CEO Brian Bischoff plus a full-time client associate and two part-time associates. That means quick service turnaround times. Many advisers will want a backbone upon which to customize their practices platform through APIs. For some time before this, we had felt that the pricing model in the custodial landscape has been ripe for disruption, explains Ben Harrison, the companys Managing Director and Head of Advisor Solutions. Even after paying the trading fees, SSG was better for my clients.. Illustration by RIA Intel. At the very least, the merged Schwabitrade entity has its work cut out to retain a high percentage of the acquired RIA relationships, Michael Kitces, head of planning strategy at Buckingham Strategic Partners, wrote in a blog post in April, acknowledging that the firm had gotten off to a good start. Learn more about reprints and licensing for this article. During the race to zero equity trades, SSG was very thoughtful about what they wanted to do, he says. EDITED BY SERGEI KLEBNIKOV. And our zero transaction costs includes institutional class share mutual funds as well the DFAs and Vanguards of the world.. Fresh off becoming a full custodian, Altruist will now have close to 10% market share of total RIA firms, SSGs service organization and a relationship with Pershing. Finally, Fox likes the ideas section of the platform, which is a forum where advisors can request features and comment on each others requests. And you can fund it all at the same time, says Windle. Were trying to do a better, job, internally, understanding the business models of our advisors, the business theyre transacting, the investments theyre making, the fees theyre generating, so we can match the right people to the right firms.. We dont get those trades for free, so we give them to advisors without a markup, Wenk explains. With its advanced tech platform and attractive pricing, Altruist is destined to be a strong competitor to the larger custodians. It is the ideal combination: We get the nimbleness and the personal service of SSG, along with the stability and security of Pershing., Advisory firm relationships: 400+ Theres a lot of uncertainty right now, he says. WebWhat to consider when choosing an RIA custodian. I dont have any fear of them trying to steal my clients, says Bhalla. We could take on more business and not be burdened by it.. OCTOBER 25, 2022, 10:00 AM. Their service experience is 180 degrees different, says Cuthbertson. After Tibergiens departure, his professional journey included working in a top executive position at E*TRADE Advisor Services, which had similar ambitions before the acquisition by Morgan Stanley in early 2020. They were going to come in and set up client meetings and handle all the paperwork, Cuthbertson says. EAS became interesting to Toth when Orion developed that capability. Pershings biggest shortcoming is their technology, in comparison with the other custodians, he says. I could be custodying assets at any company, and they would still work with me., With $30 million under management spread out over 200 clients who represent middle America, Kuha needs to watch his budget carefully. Clearing platform: Pershing Under the custody rule of the Investment Advisers Act of 1940, RIAs must hold custody of assets only with a qualified custodian as defined. Website: TradePMR. The selection process came down to BNY Mellon/Pershing and TradePMR, and Hohimer liked the service, the technology, and the access to key executives at TradePMR. At my prior firm, he adds, the process of initiating that transfer of outside assets into the firm would be, depending on the brokerage firm, very complicated, with pages of paperwork to fill out, send to the broker, and wait while they sat on it., The Altruist system not only automated this process, but also sped it up. Then I talked with the people at SSG and they said, come on over. Illustration by RIA Intel. But, he adds that in recent months, the firm has been going head-to-head with the Schwabs and Fidelitys, and gaining relationships. In addition to scaling institutional solutions to advisory businesses, SEIs culture and history have focused on taking work and responsibilities off of the advisors desk. Its a question that a lot of us face from time to time: am I willing to do some extra work in order to live up to my fiduciary responsibilities? The first thing we built into the custodial package was a fully-automated portfolio accounting and reporting system, Wenk explains. custody He is my person, says Kuha. We have thousands of different approaches to managing money, mainly to support risk reduction.. That is their number one concern at this point in time., When asked to define his firms sweet spot of ideal advisor relationships, Baldwin says: We dont look at them from the perspective of size or assets. Why the RIA Custody Business Is in Play | ThinkAdvisor Press Release If youre launching an RIA and your clients will be buying and selling assets based on your advice, youre going to need a custodian. That person, that level, would never talk to someone like me, and the same at TD. A firm with $50 million in client assets has to spend the equivalent of ten basis points on their assets to its software vendors. I would say the only weak link of the platform would be the aggregation, Pollock says. Trading fees are $4.95 per trade. We dont do that at SSG, he adds. This is a conversation I had with Jason not long ago, he says; just that $40 annual account fee at a larger custodian that alone will keep some people from investing. Another pain point was the way revenues were collected. The front end is a built-out version of the Oranj trading and account management platform that SEI acquired from a large RIA/multi-family office firm in early 2021. $ under custody: (Not Disclosed) Similarly, Hohimer established a Schwab relationship when a large corporate client moved a $40 million qualified plan to Hohimer, with the stipulation that Schwab remain the custodian. And it offers FDIC insurance up to $2.5 million, vs. $250,000 at other custodians., If our advisors decide to have any cash at all, theyre managing it, adds Skiles. There are fees associated with mutual fund trades and wire services, he says. Peter Mangan, co-founder and CEO of Shareholders Service Group (SSG) in San Diego, CA, used to say, jokingly, that the announcement that Schwab was acquiring TD Ameritrade was the biggest increase in our marketing budget (that we havent had to spend any money on) in years. Fee charge varies from 75 BP to 1% flat rate for fully bundled financial planning services. We had about 30 engineers on the project, and built a really, really great user experience, says Wenk. Our cost of acquiring that client is basically zero; there is virtually no work involved. If you enjoyed this article and would like to read more from Bob Veres, those who join the Kitces Members Section canreceive a discount to Veres' monthly 'Inside Information' newsletter here! But like most large firms, the service people who were really good would get snagged by the organization to move up, and then we would have a new class of people answering the phones. When you get Altruist, the first 100 accounts on our platform are free.. Thats how were planning on winning together.. We used Black Diamond for a while, says Windle. Perhaps the most important is the automated investing feature, where advisors can click a button that will allow clients to add assets to their portfolios. But, he adds, the company has been very quick to fix its growing pains. The differences are too numerous to mention, but they include a customizable dashboard that can display different data and windows (the firm calls them blocks) for people who play different roles in the firm. As a starting point, advisory firms can evaluate custodians on several levels based on their specific needs, from the cultural fit to their technological capabilities to the customer service a firm can expect to receive by determining whether the platform has a tiered structure where the largest firms get the best levels of service. At first, they were dipping their toes in; they might open a few accounts and say, Im going to wait until you can show me more features and be around a little longer. What is the right number of firms for a relationship manager to be working with, where theyre getting the service level were all comfortable with. Keeping the money safe is pretty much all they do, and we liked the fact that our clients hadnt heard of Pershing before we told them about them., But the deciding factor was customer service. Schwab has a bank, but the rates were really expensive, and they wanted to circumvent you and try to get the client to sign off on some higher-priced lending, he says. On the portfolio management side, Altruists biggest point of differentiation is that it offers fractional share trading, which means that advisors can create model portfolios and have them apply to even the smallest client accounts. You have the cash that the advisor keeps that is not an asset class; that covers the management fee, says Watson. We had maybe $150 million when we first approached Pershing in 2008, says Frank Lavrigata, the firms Director of Portfolio Management. If he was going to make a switch to avoid being swept up in the merger, what would be the best option, not for him, but for his clients? Police in South Florida arrest another suspect in Memorial Day And of course I wanted to get better service as well, which allows me to be more responsive to my clients., The search led him to Shareholders Service Group which, he says, is even more of the things that he was looking for when he originally selected TD as his custodian. But beyond that, the inquiries all seem to center around one common denominator. Americas Top RIA Firms. I have one client who just came onboard who held their clients at Vanguard and Charles Schwab. 9 Trends That Sum Up the State of RIAs: Cerulli | ThinkAdvisor Our advisors said, paying trading fees is better than going to zero if the effect is that we dont compete with them, says Mangan. RIA Custodian He would know the most about that. 1. Combined, that represents annualized growth of 12% in major account assets under custody since 2019. And it will keep getting better., DJ Windle, of Windle Wealth in Oklahoma City, OK, says he was actually the very first person to use the software interface as a beta tester. At SEI, theyre given the contact information of their choice from several advisory firms (with permission) and are told to ask any questions they wish. Any drawbacks to the Pershing relationship? They have given us the platform we needed so we could have an unbiased relationship., Advisory firm relationships: 1,600+ How am I going to rebalance my accounts? This is a long buildup to the Altruist feature set. The technology and clearing relationship, he says, was built to be almost infinitely scalable, and people have their accounts up and running in minutes, which addresses another pain point in the existing marketplace. Why build all those features that advisors can easily purchase on the outside? But here, I can call their offices and I might get the CEO or a VP of something, and always somebody who knows me and my firm. Peter Murphy, President of Founders Financial in Baltimore, MD, runs a complicated operation: Founders is a standalone RIA that manages some RIA offices that it acquired, and is also a broker-dealer, serving 95 independent financial advisors as independent contractors. For a smaller RIA, to be able to go to a single place where you get custody and clearing, trading, billing, reporting all in one place, its a pretty compelling value proposition. If somebody is dollar-cost-averaging $100 to their account, if you cannot set that up almost entirely automated, it is incredibly inefficient for the advisor. Equity treats me like a client, just like the way I treat my clients., Advisory firm relationships: 200 If its better to get on the phone, of course, we do have phones, he adds. He and his team communicate service requests with the same five-person team on the trading desk and cashiering. And for a custodian to offer a turn-key solution where all the parts speak to each other, its really powerful.. Theyre very transparent about how they make their money. We should be behind the scenes helping them., Were trying to put the advisor in the center of that flywheel of services they provide, all those other things around investment management, so the advisor can go deeper with their clients, Watson adds. I feel like I got lost in the shuffle, not being a multi-billion dollar RIA. The technology is so integrated into the custody platform that it has created tremendous efficiencies for us. He moved the assets over in August of 2020, and opted for the subscription solution, paying ten basis points on the assets. For RIAs that want to make a switch and still work with a larger entity, Pershing is an obvious solution. As the compliance officer at our firm, I know they have our backs and I trust them., OBrien adds that he relies on technology guidance from Skiles and his team. Combined, that represents annualized growth of 12% in major These data show the market share of the top four custodians among major accounts rose slightly to 36.1% at the end of June from 34.6% two years earlier. If someone were to sign up with Schwab today, they would probably be looking at 30 to 60 days for the applications and the training and the onboarding, before they could have a rep code and open accounts, says Wenk. S. o far this year, the S&P 500 Index is She says that Liberty has been a steady presence in the companys life. The firm is so new and growing so rapidly that any report of assets or advisor relationships would be outmoded between the time of writing and the time of publishing. A little bit, Hohimer admits. I dont have to charge 1% of the portfolio or a high quarterly fee to turn a profit, says Fox. RIA service providers are notching strong growth in clients and assets under custody, according to a review of publicly available data, as well as information provided directly by firms in the annual InvestmentNews Custody & Clearing surveys. That allows for us to make sure that nothing will ever be surfaced that has been incorrectly reconciled. They just implemented a new performance reporting system through Black Diamond, says Bischoff. [cp_popup display="inline" style_id="147307" step_id = "1"][/cp_popup], BNY Mellon/Pershing | Shareholders Service Group (SSG) | TradePMR |, SEI | Equity Advisor Solutions |Axos Advisor Services | Altruist. I have mostly calls with Pershing staff, says Ran. It rebalances to your model portfolios for every client, which makes it perfect for my young professional clients. Indeed, the data show a gradual rise in the number of solutions providers in the industry. Altruist follows the embedded finance trend of building an entirely new, user-friendly front office onto a traditional back-office platform. I can get them invested in the same portfolio as I would a larger account size., Perhaps most importantly, the Altruist pricing structure lets Fox pass on the cost savings from what he would otherwise have had to pay for a portfolio management software suite. The challenge for SEI in this custodial competition is that the firm has a strong reputation in a completely different business. This strategy has been very successful for us.. I think Altruist is doing a great job, Castelli says. The biggest issue that Altruist is solving, he adds, is that even after you pick your custodian, there are dozens of other pieces of software that you have to purchase., Windle compares Altruist performance reporting and rebalancing to the all-in-one integrated platform he once enjoyed at Edward Jones. E*TRADEs plan was to leapfrog all the constraints of legacy technology that had stalled progress at the larger competitors. Pollock says that SEI is still working on accommodating private real estate deals (which Pollock Investment Advisors offers), and individual 401(k) client accounts are currently not included in the household rebalancing system. We dont get that from the other custodian that we work with. (He declines to name it. They take a lot of pride in the service they provide.. If we had that data in real time instead of once a year, we could know, from a marketing and sales and growth perspective, where the money was coming from, how much is net new, what we brought in gross and net., Working with Pollocks ops manager and a younger advisor, SEI managed to program the report onto the platform. I wanted to provide a home for advisors who wanted white glove service and a real relationship with their custodian, says Baldwin. If youre looking for parity with an incumbent custodian that has been around for a long time, he adds, a year ago we probably supported 50-60 percent of the types of accounts that most advisors were using. These should all be standard with the custodial relationship, rather than add-ons.. Not only did we go that route; we actually did it in 2016, says Erich Holland, Head of Sales and Experience at SEIs independent advisor business. The SEC attempts to clarify rules around standing letters of authorization, and when an RIA is subject to the 'custody rule.' BLB&B Advisors, in Montgomeryville, PA, was founded in 1964 and has been an RIA since 1971, founded by two Air Force pilots from the Philadelphia area. Wenk says that this is a major reason why the larger custodians havent allowed advisory firms to trade fractional shares in client accounts. There is no way I could have gotten that clarification from TD, he adds. That, he adds, has been a huge differentiator., Specifically, Murphy says that Liberty has provided Founders with the ability to run multiple model models in a single account, and report on the models individually and comprehensively across accounts and households. It creates a nice-looking PDF of performance, you can select whichever accounts you want to include and you can select the range, Fox says. ETF and individual security trading fees are set at $0, and some mutual fund families, like Dimensional Fund Advisors, come in at $5 per transaction. Like the other custodial options in this article, the firm makes a point of the fact that it doesnt have a retail division. The first is enhanced trading across accounts or households, plus automated tax-lot-level rebalancing (which can be set in a variety of ways), and a variety of institutional performance measurement tools that the firm has always provided through its outsourced investment platform. Axos is also relatively new to the custodial space, entering through its 2021 acquisition of ETrade Advisor Services from Morgan Stanley. Altruist, a venture-backed fintech platform and digital custodian, has garnered $112 million in a Series D funding round, bringing the total amount of capital raised since the companys 2018 founding to $290 million. If I log in and look at my client portfolios when theyre redoing their performance algorithms, he says, the money may not be there for an hour, and then you can see it again. Castelli worries that if a client logged in at that particular hour, he'd get a phone call.
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