Many advisors find just one custodian isn't enough.

Competition in the custodial services industry has undoubtedly provided advisors with more choices, as a steady stream of niche players have squeezed into a market dominated by powerhouses such as Charles Schwab, Fidelity and TD Waterhouse.

There are, in fact, so many custodians to chose from nowadays that many advisors are succumbing to a potato chip effect: They can't just have one. "We would have used one, but what we found is that no one custodian will do all the things you want it to do," says Jill C. Shermer, manager of asset management services with the Wade Financial Group Inc. in Minneapolis.

The firm uses three primary custodians-SEI, Schwab and Foliofn-as well as two secondary custodians for annuity products and clients with large cash positions. Each of the custodians, she says, brings at least one benefit to clients that makes it worthwhile to maintain the relationship.

The firm stays with multiple custodians despite the increased workload it creates for staff, particularly in cases where one client has their assets broken up in separate custodial accounts. "For clients with more than one custodian, it takes more time for us to do back-office things like billing," she says.

There are actually a number of reasons why advisors say it's sometimes unavoidable, and sometimes preferable, to use the services of two or more custodians.

They note that increased competition in the business has made the use of multiple custodians more feasible. Also, as competition forces custodians to tweak their prices and services, advisors are continually finding better deals for themselves and switching to new providers. But even when advisors switch, they often find themselves maintaining relationships with their former custodians-either for the sake of prudence, or for clients who don't want to switch.

"I'm not sure I would want to bank my entire future on one organization," says Charles D. Haines, president and CEO of Charles D. Haines LLC in Birmingham, Ala. Haines is one of the founding shareholders of National Advisors Trust, where he has shifted much of his custodial business.

But he has also retained the services of Charles Schwab, his main custodian before National Advisors. "It's not a good idea to get too tied up and cozy with one custodian," he says. Ironically, Fidelity provides certain clearing and custodial services to National Advisors.

Advisors also say that along with competition, the custodial marketplace has become more specialized and segmented. Charles Schwab, for instance, has been targeting its pricing and services to higher-income clientele. Smaller niche players, including Ameritrade, have moved in to scoop up customers Schwab may be leaving behind. Likewise, fee schedules and services are in constant motion as players adjust to the changing marketplace.

Adding to the plethora of possibilities is the fact that clients themselves have their favorites when it comes to custodians, and can exert a heavy influence on their advisors.

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