As the leader of an RIA firm, you must make many decisions that will affect the course of your business. Choosing the right custodian is one of the most important of these decisions—especially when you consider all the mergers and acquisitions that are taking place now in the custody space.
Your custodian should provide no less than the same level of service you provide to your clients. Therefore, it’s critical to perform thorough due diligence when choosing a custodian to help ensure that you find the right match for your firm.
The right custodian choice is different for every RIA firm. Here are nine questions to ask potential custodians as you search for the right fit for your business:
1. Do you offer comprehensive custody and clearing solutions and flexible investment solutions?
The custodian’s products and services should be designed to fit your clients’ needs, based on their assets and accounts, instead of being dictated to you based on a corporate agenda. The custodian should take a holistic approach to products and services, including custody, clearing, banking and more.
A custodian should also be able to support the needs of small client accounts with simple products like ETFs and mutual funds, as well as large clients with more complex needs. For these clients, the custodian should offer end-to-end processing of alternative investments such as hedge funds, private equity, non-traded REITs, managed futures and limited partnerships.
2. What other kinds of RIAs do you work with?
Ideally, your custodian will primarily work with other RIA firms similar in size and scope to yours. This will help the custodian better understand the challenges faced by firms like yours and offer solutions to meet them. During this process, you can also ask to speak with RIA firms similar to yours that work with the custodian. These references should be able to answer your questions about their experience working with the custodian.
3. Are you a direct competitor?
Most large custodians offer proprietary products to clients similar to what their RIA clients offer. This is a direct conflict of interest, as these custodians compete with the firms they are being paid to serve. In fact, one of the large custodians recently made headlines by enrolling their retail clients with assets between $1M-$10M in a service that offers advice but fell short of making a commitment to refer those clients to the RIAs in their network. Building your business alongside a custodian who is also a competitor opens the door for your best ideas and innovations to be “Sherlocked.” A term usually reserved for the tech industry but equally applicable in this context. With margins shrinking and competition at an all-time high, the last thing you want is to compete with one of your most important partners. If your potential custodial partner is also a competitor, it’s critical to evaluate other custodial partners.
4. What kind of service culture do you have?
Is the custodian’s service culture based on building a relationship with you and your firm through regular communication, including face-to-face meetings? When you need help, can you talk to a human being who knows you and your business, or do you have to contact a call center or, worse yet, use a chatbot? You shouldn’t settle for anything less than the service you provide your clients.
5. Will you be heard and supported?
Having direct access to representatives who communicate with you regularly and are responsive to your questions and concerns is game-changing for your business. These representatives will take the time to get to know you and your business inside and out to anticipate your needs, provide effective solutions, and resolve any issues that may arise.
6. Is your pricing flexible and transparent?
Make sure you understand the custodian’s pricing structure. It should be clearly defined, easy to understand, and flexible so you can make changes in the future as your business needs change. Don’t just think about how the fees impact you today, but how they may change over time as you add more assets.
7. How innovative and flexible is your technology platform?
Your custodian’s technology capabilities will directly impact the efficiency and accuracy of your services. Look for a technology platform that integrates with your preferred third-party trading and reporting technologies. The platform should offer robust investment management and trading tools with analytics from leading data providers, sophisticated order execution features, and easy-to-use post-trade processing applications.
Flexibility is also important when it comes to a custodian’s technology offerings. You should have more than one technology solution to choose from, depending on your firm’s needs—whether this is a bundled solution, open architecture, or API only.
8. Can you grow with me as my RIA firm grows?
A custodian should be scalable so they can meet not only the needs of your business today but also your long-term needs as your firm grows. Discuss your growth goals and plans with your prospective custodial partner to better understand how their support can change with your business.
9. Do you offer integrated banking products and solutions?
Many clients today demand all-around financial support from their RIA, including consumer and business banking products and services such as checking accounts, savings accounts, securities-based lending, jumbo loans, and other lending products. Be sure a custodian offers these, as well as RIA lending solutions (like succession, merger and acquisition lending) to support your business needs.
If your prospective custodial partner doesn’t answer the questions above in a way that would support your business, keep looking. Ask other RIAs who they custody with and if they are happy. Because your relationship with your custodian can make or break your business, finding the right partner is critical. Most importantly, don’t settle for a partner that will directly compete with you for clients. You want a partner who will listen to your needs, advocate for your goals, and help you succeed, not one that builds a business model to target your ideal client with products and services that negate the value of your advice. The right custodian can support your growth initiatives and provide valuable guidance and insights to help you succeed.
Gino DeRango is senior vice president at Axos Advisor Services.