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.

At the company's inception, one of its larger selling points was its complete lack of a retail division-an attribute that other firms like Raymond James Financial have also accentuated-addressing concerns that some advisors have that Schwab's retail efforts infringe on their markets. Now, with 45 advisor relationships after less than a year in business, Shareholder Services Group officials feel they're in the market to stay.

Mangan says the company's advisor clients have come from a mix of areas, including other custodians and wirehouse advisors looking to make the transition from commissions to fees. "There seems to be more of that going on than there was in the past," Mangan says of the wirehouse defections.

Company spokesman Barry Boyt says the nonretail aspect of Shareholder Services Group's offerings has played a large role in attracting clients. The company also feels its competitive fee structure, including a $25 flat fee on mutual fund trades, is also attracting advisors.

"Far and away, the number one concern we're seeing is the fact that their clients are being approached (by their custodians) and they just don't want to have those issues anymore," Boyt says.

The company is keeping its total assets under management confidential. Mangan feels, however, that this aspect of the business is becoming less and less consequential. He notes that 20% of the company's advisors are using a fee structure other than one predicated on managed assets, and that he expects the number of firms using hourly fees, annual retainers or other nonasset based fee structures to grow. "Advisors are paying less and less attention to assets as being the basis of their client relationships," Mangan says.

Another custodian, National Advisors Trust in Overland Park, Kan., is taking the slow and steady approach to growth. Unlike its competition, National Advisors Trust was founded by a group of advisors, is run by a board of directors composed primarily of advisors and was initially established to be a trust company first and a custodian second. Since then, the custodian part of the business has grown at a much faster pace than the trust unit.

The thinking behind the company's founding was that an advisor-run company could do the best job at filling the custodial and trust service needs of its advisor clients. It also meant the company would not be pursuing a growth-at-all-costs strategy.

Since it was formed in October 2001, National Advisors Trust has only accepted new advisors as clients through periodic stock offerings. (To be a client of the company, you must also be a shareholder). Through the end of March, the company had about 112 advisor clients and shareholders, and was in the midst of a private placement stock offering, according to company President and CEO David Roberts. The goal: recruit no more than 130 advisors and keep the company's roster of advisor clients at that level.

"At some point you have a combination of enough advisors to support the business model," Roberts says. "If you get too big, you start not knowing the firms and not knowing how to respond to them."

Even with a fixed number of advisor clients, the company feels it has much room for growth. The company currently has about $1.9 billion of assets under management, with about 80% in custodial services and the rest with its personal trust and employee benefit services.

As a whole, however, the company's advisors manage a total of $50 billion in assets. That, Roberts says, represents a lot of business that has yet to be moved over to National Advisors Trust. Most of the growth is expected to be in the trust services side of the business, which was the key driver of the founding of the company, according to Roberts. "The trust and employee benefits is the thing we try to emphasize," Roberts says.

Raymond James Financial Services, which launched its fee-based advisory services division three years ago, has been focused on helping brokers make the transition to fee-only independent practices. The division currently has 33 advisor relationships, with six more in the pipeline, says Michael Di Girolamo, senior vice president at Raymond James Investment Advisors Division. The advisors have total assets under management of about $1.5 billion, he adds.

As regulations become more stringent, and investors look for more objectivity in their financial advisors, Di Girolamo says the expectation is that trend will continue to be towards fee-only services. "They're having more difficulty justifying staying in a brokerage firm environment because of the conflicts of interest they see between themselves and the brokerage firms," he says. "Plus, there's the additional pressures being put on them from the regulatory changes ... People are frustrated."

With the "breakaway broker" in mind, Raymond James has set up a three-month process that allows reps to join Raymond James and transition to being their own independent advisor, including help with setting up an office, establishing contracts, and referrals to consultants and attorneys who help them through the process. "We've been targeting people who are substantially fee-based anyway and managing their assets as a portfolio in a brokerage firm," Di Girolamo says.

Ameritrade, which entered the advisory services market three years ago, has been touting competitive pricing and accessible technology in its drive to carve out a greater niche in the industry. The firm is zeroing in on advisors with assets in the range of $5 million to $50 million-a subgroup of advisors that has been hit with higher fees at Schwab and some of the other larger players in the marketplace.

Yet in a recent interview, James Wangsness, senior vice president of Ameritrade Advisor Services, says the introduction of new separate account and bond-trading services will likely allow the company to expand its upper range of advisor clients. "These products not being available was keeping us out of the higher-level accounts," Wangsness says. "We've rolled them out because that's what our advisors have asked for."

The services have been added to the Ameritrade platform through third-party agreements. The bond-trading capability is provided by TheMuniCenter LLC, a centralized Web-based marketplace that touts a $6 billion inventory of municipal and corporate bonds, Wangsness says. The firm is a joint venture of a group of Wall Street firms including Merrill Lynch, Morgan Stanley and Lehman Brothers. It offers live pricing-"When you hit 'Bid,' that's what you get," Wangsness says-and a non-proprietary sales desk.

The separate accounts are offered through ADVISORport Inc., whose platform offers access to more than 25 money managers utilizing more than 40 different capitalization and style categories.

The company says growth was on the upswing before the introduction of the new services. The company has about 1,000 advisor relationships and about $2 billion in assets under management, up 135% and 366% respectively from last year.