If independent advisors want to become more efficient, observes George Tamer, director of strategic relationships for TD Ameritrade, “they’re going to continue coming to custodians.”
Custodians have always offered a range of services to help RIAs run their businesses more successfully—including back-office record-keeping, bulk trading, technology upgrades, help with sophisticated trust services, unified managed account handling, staff training, branding and marketing, and so forth.
But lately, the number of independent advisors and RIAs have been proliferating, and naturally the competition among custodians has heated up as a result. The big names have been forced to come up with newer offerings and initiatives to meet the need.
With roughly 25% of the broadly defined custodian market—twice that of its closest competitor—Schwab is the undisputed top dog. That’s partly because it was one of the first to enter the space more than two decades ago. “Advisors come to us for timely and accurate service, but we also help them with unusually complex scenarios,” says Jon Beatty, senior vice president of sales and relationship management at Schwab Advisor Services in San Francisco. “We’re often a thought partner when it comes to servicing complex client needs.”
The firm has some 7,000 custodian clients with an aggregate value of $725 billion in assets. Schwab has clearly kept up with industry changes. The firm’s Intelligent Integration initiative uses client relationship management software as the hub of the advisor’s back office, says Beatty. “By integrating other technologies into the CRM, we help create a more efficient environment.”
These applications allow advisors to tap into not just client data but portfolio management information, even trade order histories, all in the same place at the same time. “We’ve heard advisors complain that dealing with many different systems on their desktops can be a drag on performance,” Beatty explains. “If you have to go from one system to the next to the next to serve your clients, that’s not as efficient as you’d like. Integration of these different technologies is a real asset for our advisors.”
Not surprisingly, it’s not just a matter of integrating desktop computers. “Mobile solutions and apps for advisors and their clients have become high priorities,” he adds.
Beyond Order Execution
Thomas Myers, a principal at Brownson, Rehmus & Foxworth in Menlo Park, Calif., has been using Schwab’s custodian services since the mid-1990s. “Schwab brings a lot of resources to the table beyond the basic execution of orders,” Myers says. “First and foremost, it comes down to helping us provide world-class, excellent service to our clients. If the custodian is not good at the basic day-to-day blocking and tackling, the rest doesn’t matter.”
Besides providing technology, custodians like Schwab remain committed to practice management—helping advisors with business development; managing their relationships with centers of influence such as accountants, estate planning attorneys and chambers of commerce; developing strategic long-range plans; and even succession planning. “We also have an educational program called ‘RIA Stands For You,’ an effort to create awareness about the RIA business model with consumers,” says Beatty. It comprises online information, videos and white papers aimed at consumers. Advisors can link their own marketing campaigns to it.
Overall, Schwab Advisor Services is trying to go beyond simply providing information to being an actual partner in implementing solutions. “We have a team of business consultants and relationship managers who work in advisors’ own offices to help put into effect best practices techniques,” says Beatty.
Schwab also offers eight- to 12-week workshops called “Insight To Action,” designed to educate advisors about topics such as mastering strategic planning, managing client profitability and positioning their businesses on their own terms. “After the workshop, we help advisors implement the techniques that have been discussed,” Beatty says.
In June 2012, Schwab released the results of a proprietary survey of more than 1,000 advisors. The goal was to get a snapshot of where the industry is so advisors could compare where they stood. “This study helps advisors see how they benchmark against their peers,” explains Beatty, “and our Insight to Action helps them address any challenges that this uncovers.”
While Schwab may have the longest experience, Boston’s Fidelity offers a different set of advantages. Custodying more than $586 billion in assets on behalf of some 3,300 clients, it is the second-biggest player in this market.
Fidelity, too, touts the benefits of its technology offerings. But it also has something unique: its investment management pedigree, says Michael Durbin, president of Fidelity Institutional Wealth Services.
“Because we are a private company, we have our eye on long-term value creation while some of our publicly held competitors have to be concerned about profitability over the next two quarters,” Durbin says.
At least one RIA customer echoes that sentiment. “Fidelity manages its business for the long term [and] seeks to build long-term partnerships with client firms,” says John Morris, a managing partner at Crestwood Advisors in Boston. He also cites the fact that the company is private and well-capitalized—though he says the most important thing he gets from the company is its technology.
Fidelity also boasts a global roster of portfolio managers, research analysts and economists. “We have a native investor acumen and orientation that we can share with our custody clients,” says Durbin, adding, “We have our own embedded capital-markets organization just down the hall.”
To some RIAs, that’s a vital asset. “Access to Fidelity’s capital markets desk can be a differentiator,” says Russ Hill, chairman and CEO of Long Beach, Calif.-headquartered Halbert Hargrove. “Being a private company, Fidelity has been willing to invest heavily and over time in areas that directly benefit us—and it listens to our firm and others in prioritizing those investments. The legal form of our relationship is vendor-vendee, but we really think of it as a strategic partnership.”
Of all the services custodians can offer, Hill says the top items on his list are “good executions and daily resolution of trading issues. …These are the threshold issues.”
Fidelity also prides itself on being able to assist advisors with their highest high-net-worth clients. That’s because its RIA custody business works closely with its Family Office Services division, which provides administrative, brokerage and custody services to wealthy individuals and single-family offices. “We have a critical joint venture with that unit, which allows us to better service RIAs who have that kind of client in their book of business,” says Durbin. “So through the partnership, we can handle some of the wealthiest and most complex families in the nation.”
On the other hand, what draws more than 4,500 independent advisors to TD Ameritrade’s custodial platform is its ability to work with a broad scope of investors. TD Ameritrade, which custodies some $188 billion in client assets, specializes in providing “insights to new RIAs who are looking to go independent,” says Tamer, the Fort Worth, Texas-based strategic-relationships director.
The company recently launched a program called “RIA Connect” to help fledgling firms join existing RIAs. “Often, when brokers leave a large broker-dealer, they want to be independent but don’t necessarily want to hang their own shingles,” says Tamer. “So they’ll look to contract with an established advisor. RIA Connect facilitates that process.”
TD Ameritrade does more than help newcomers, of course. It also differs from the other companies with its “Open Access” technology—a computer system that “integrates with the systems our clients are already using,” explains Tamer. “We don’t tell clients that they have to use one set of tools or one predetermined system, which they like. They’ve told us they put a lot of time and effort into choosing what works best for them, and they don’t want to change it completely.”
He says that getting feedback from clients and having a two-way relationship is a key part of the process. “Our relationship managers get to know our advisors on an intimate level. We are deeply entrenched in working with them and want to make sure we understand exactly what they’re trying to fix, accomplish or avoid.”
In addition, “advisor panels” made up of principals from the advisory practices meet regularly with TD Ameritrade executives to discuss broad industry issues. “They help us understand what we should be focusing on from the custodial perspective,” says Tamer.
TD Ameritrade is also active in promoting advisors’ concerns on the national stage with its advocacy. It has an expert in Washington who consults with regulators and legislators. “We give our advisors a voice,” says Tamer.
Pershing Advisor Services
Pershing Advisor Services, a division of BNY Mellon, is the fourth-biggest custodian, headquartered in Jersey City, N.J. Pershing has more than tripled the aggregate value of its assets under custody over the past five years from $30 billion to more than $100 billion. This growth is largely attributed to Pershing’s focus on “who we serve, not what we sell,” claims Kim Dellarocca, director of segment marketing and the global head of practice management.
“Our average RIAs and their average clients are larger than our competitors’,” she says. “The reason is that we are concentrating our resources on serving professionally managed, growth-oriented advisory firms that serve clients with complex financial lives.”
Other Forms Of Custodianship
Many advisors, of course, use multiple custodians, not just one. Some self-clearing brokerage firms like LPL Financial have launched their own custodial platforms in recent years. Others may seek a degree of back-office and technology support from non-custodian firms such as Commonwealth Financial Network, which custodies with National Financial Services for trading and other custodial services.
“The advantage is in the value we add beyond the basic execution and clearing functions most often associated with the custodial platform,” says Greg Gohr, vice president of advisory services at Commonwealth, in Waltham, Mass. “When an advisor affiliates with Commonwealth, he or she is accessing an advisory toolbox that is second to none.”
Commonwealth purveys its own technology platform, practice-management coaching and compliance consulting and oversight. “Commonwealth makes all the custodial technology that we use,” says Steven Stocker, managing member and principal at Investment Partners Ltd., in New Philadelphia, Ohio. “You really can’t separate Commonwealth and National Financial. They work together seamlessly.”
But perhaps most important to an independent practice like Investment Partners is Commonwealth’s “responsiveness, its attention to our business model, and its desire to continually improve and help us do the same,” Stocker says.
“Commonwealth has become familiar with the way we work, and it works to help us grow without imposing on us.”
The easy two-way communication is crucial. “As a privately owned enterprise, we can keep our focus exclusively on what advisors want, rather than meeting quarterly earnings,” Gohr says. “Most initiatives here are, in fact, driven by advisor feedback.”
That close give-and-take is critical. Ideally, the custodian should become a kind of extension of the advisory practice itself. “Our custodian team is almost like part of our back office,” says Myers, of Brownson, Rehmus & Foxworth, referring to his Schwab support squad. “They may even be slightly more motivated because they know they can be easily replaced.”
After all, he explains, it would be a lot easier to move accounts from one custodian to another than fire staff and hire replacements.