Where you put your fee-only business is now a wide-open question.

Where investment advisors decide to custody their fee-based business is becoming a matter of some debate, thanks to an increasing number of new entrants and a decided retooling by established players. The upshot is simple: Advisors today have more choice than ever before in finding the right custodial fit in terms of price, back-office service and technology platforms.

The influx of planners to the fee-based model is driving the creation of custodial platforms at many broker-dealers, where executives don't want to lose their once-commissioned planners to other platforms. Also, fee-based advisory assets are predictable, growing and look particularly profitable in the face of shrinking and unstable transaction-oriented business.

Michael Di Girolamo, senior vice president at Raymond James Investment Advisors Division, says the economic and regulatory pressures of doing commission-based business is fueling the trend. "Fee-only is becoming more attractive across the board," says Di Girolamo, who has led the launch of Raymond James' custodial platform over the past several years. Raymond James allows planners and brokers considering a transition to a fee-only practice to hold their securities license at the firm for two years, in case they conclude that the fee-only world isn't for them and they want to go back to a fee-and-commission model.

Custodial choice and competition is good news for a profession that has seen some of its major custodians, including giants Schwab Institutional and Vanguard, turn the tables on advisors. On July 1 Schwab, the leading U.S. gatherer of custodial assets, according to Boston-based Cerulli & Associates, ratcheted up fees to $1,200 per quarter for advisors who manage less than $10 million, from $600 quarterly for firms managing less than $3 million in assets. The new fees impact 1,800 of the 5,800 financial advisors who use Schwab's custodial services.

In March, Vanguard decided it wanted out of the increasingly costly and technology-driven custody business altogether-a move that is still reverberating among the 400 advisors who custodied roughly $5 billion assets with the mutual fund giant. The firm gave advisors six months to find a new custodian and endorsed T. D. Waterhouse as its replacement.

Both decisions were a wake-up call for advisors and a driving force leading advisory firms to place business with more than one custodian as a defensive move. The goal, say advisors, is to ensure they aren't left high and dry should a broker-dealer run aground or decide to get out of the business. "I think as far as custodians go, two is better than one," says Christopher Cordaro, a wealth manager with Regent Atlantic Capital in Chatham, N.J. "Just in case there is a disaster or a firm closes up shop, we want to be covered."

Brokerage executives admit that they are benefiting from the uncertainty. "There has been lots of interest generated lately, especially among advisors who manage less than $10 million," says Dean Rodewald, director of client relations at Datalynx in Denver.

What's different now than, say, three years ago, is that new and existing custodians are getting very good at deciding what unique market segment they want to serve-whether it's the smallest advisor market or the largest, those who like to trade individual equities or those who want to move their business from a wirehouse. Now more than ever, there really does seem to be a custodian for just about any advisor.

In fact, one of the claims to fame at Raymond James Investment Advisors Division is precisely that it is expert at helping wirehouse brokers transition to a fee-only independent practice with a minimum of muss, fuss and downtime. While the division's Di Girolamo says its sweet spot is asset manager types with $100 million to $500 million to custody, today the average advisor has about $60 million. So far 25 firms have signed on with the division, which Raymond James launched about 20 months ago, and another six firms are in the pipeline. Custodied assets are currently approaching the $1 billion mark, with another $250 million waiting for final custody agreements to be inked. "We're looking for a minimum of $25 million in assets and SEC (Securities and Exchange Commission) registration," says Di Girolamo.

Transitioning wirehouse brokers are accounting for a significant percentage of the new growth. "We think we offer a service that none of our competitors can," says Di Girolamo. He explains that to mitigate the months of downtime a wirehouse broker might experience while he registers as an investment advisor, Raymond James allows the firm to register as an independent contractor with Raymond James Financial Services. "We're in the process of doing this for several branch offices now," Di Girolamo says. "This is for the wirehouse advisor who is already substantially fee-based, but sees himself as independent."

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