Many are trying hard to differentiate themselves-and are succeeding.
When it comes to custodial services for fee-based advisors, the dominance of a "Big Three" hasn't stopped smaller niche players from stepping in and finding areas in which to grow.
Competition is heavy in this marketplace, with Charles Schwab the leading brand, followed by Fidelity Investments and then TD Waterhouse. Yet while these three companies dominate-to the point where some industry observers have often wondered if some consolidation is due-smaller players have continued to function and grow.
The end result has been more choices for advisors.
DATAlynx, for example, has been able to maintain steady growth since it started in 1987 partly through clearly separating itself from the retail market, says Dean Rodewald, the company's vice president of RIA services. "Our growth strategy has been to not offer retail products and services," he says. "That has really been a huge benefit for us, especially as some of our competitors get more and more involved in offering the same services to investors that our advisory clients do."
The company grew by 19% in accounts and advisory relationships last year, he says. DATAlynx currently has 423 advisor relationships, and assets under management rose from $5.3 billion to $8.9 billion last year.
Like other companies competing in the market, DATAlynx feels competitive pricing and personalized service are playing a greater role in an industry that's getting more and more commoditized. The company, for example, recently lowered its fees on ETF block trades from $15 to $5, Rodewald says. The company also assigns a transfer agent and a relationship manager to each advisor. Typically, each representative handles about two-dozen advisor relationships, Rodewald says.
Among the other recent initiatives by DATAlynx is the rollout of a separate account services platform through a third-party agreement with AssetMark Investment Services, and the offering of full-service brokerage capabilities through a leveraging of services offered by parent company Fiserve Inc., he says.
Rodewald, in fact, feels being under the umbrella of Fiserve is a distinct advantage for DATAlynx in the competitive marketplace. "There are certainly more players, in terms of custodians offering services to financial advisors, than there once were," he says. "But we're seeing the costs associated with supporting advisors going up. Things are expensive when it comes to technology. It's not going to be easy for a lot of upstart companies."
One of those upstarts, Shareholder Services Group, started operations nearly a year ago. Its founders, all of whom were executives at the former Jack White & Co., feel the San Diego-based company is quickly establishing itself in its key market of fee-only independent advisors. "The word-of-mouth effect, I think, is starting to set in," says Peter Mangan, president and CEO of the company. "Our target is to have a good reputation for service."
Mangan and Robert O. Reed, the firm's executive vice president and chief operating officer, started the company after stints with Jack White and TD Waterhouse. Reed was one of the founding executives of Jack White & Co. in 1978, and he was an executive vice president of the firm after TD Waterhouse acquired it. Mangan, meanwhile, started Jack White's financial advisor division. Later he ran the TD Waterhouse advisor unit, and subsequently oversaw its mutual fund operations.