With business booming, custodians
are searching for an edge.

    Competition in the fee-based advisory field and the pressure to grow assets and operations is not only forcing changes upon advisors, but also the custodians who serve them. With the core business of custody and clearing now a commodity, the major players in the fee-based custodian industry are essentially racing to roll out additional tools and services.
    The offerings run the gamut, covering areas such as training, client management, administration, financial planning and investment and practice management. In the final analysis, however, custodians say the aim is to offer service add-ons that can save advisors time and money as they attempt to grow their businesses.
    Adding to the push for new services is the fact that "breakaway brokers," advisors who are going from a brokerage to RIA practice, are looking for help in making a smooth transition. Custodians also indicate that they've seen an increase in business from these transitional advisors-possibly the result of recent Securities and Exchange Commission rule changes on the regulation of fee-based brokerage accounts.
    "Over the past 18 months we've seen a significant increase in the number of RIA firms transitioning from the wirehouses and Wall Street," says Scott Dell'Orfano, executive vice president of Fidelity Registered Investment Advisor Group. "The volumes for Fidelity will triple this year."
    With the nation's pool of wealth on the rise, custodians are finding that asset growth is a key issue for advisory firms of all sizes.
    At Schwab Institutional, a survey earlier this year of 800 advisors-spanning firms with less than $24 million under management to those with more than $1 billion-concluded the advisors saw average annual growth of 20% the past three years. The top 20 fastest-growing firms, all of which had about $100 million or more in assets under management, reported annual growth of between 30% and 60%.
    Advisors, however, expressed a desire to grow at a greater pace, says Michelle Crethar, Schwab's vice president of marketing programs. About 81% said they wanted to grow either aggressively or moderately higher, Crethar says. "When they talked about barriers to growth it got into the issues of staff time, capacity and accountability," she says.
    Another significant finding from the company's point of view was that 78% of respondents said they were interested in utilizing Schwab to help growth, particularly in the areas of marketing and business development, Crethar says.
    Schwab recently upgraded its managed account offerings, and launched a new Web site for advisors who use Schwab Performance Technologies software, as part of its expansion of services. Crethar says the company hopes to start getting a clearer picture of advisors' needs in August, when it launches what it calls the RIA Benchmarking Growth Trend Study.
    The plan calls for Schwab to collect data from its client advisors-Crethar says the goal is to get at least 1,000 advisors to participate-on various aspects of their operations, including staffing, pricing and business development investment. In October, participants will receive a report detailing how their firm stacks up against others involved in the study.
    The benchmarking will add to insights already gleaned from the survey earlier this year from studying common threads of the high-growth firms that participated. Among their common traits, according to Crethar, was having a long-term vision, a specific plan for growth, a defined ideal client and a willingness to raise account minimums. "Advisors use benchmarking and analytics on a daily basis to help clients, and we think they're hungry for this kind of data to help plan and manage their businesses for future growth," Crethar says.
    At Fidelity, many of the services rolled out recently focus on growth through efficiency. "I would say the biggest need is around technology," Dell'Orfano says. "There's intense competition in every market and it's putting a lot of pressure on the margins of these firms."
    That's why Fidelity has spent much of the past year rolling out new features on its platform that are designed to help advisors manage information more efficiently, he says. In many cases, that essentially means allowing them to integrate several applications, negating the need for manual entry of data multiple times. "The long-term goal is creating an end-to-end integrated work station," he says.
    This year the company has focused on integrating applications in the areas of new accounts, money transfers and investment management, Dell'Orfano says. Next year, the plan is to integrate financial planning and CRM applications with Fidelity's Advisor Channel workstation. The year after, the focus will include portfolio management.
    Fidelity earlier this year also launched a "roadmap" program that provides breakaway brokers with a knowledge base on how to set up a new RIA practice. The launch comes a year after Fidelity ushered 100 advisors into RIA practices-a number that Dell'Orfano says is on track to triple this year.
    "Most of the roadmap tool assistance is primarily pointed toward wirehouse Wall Street reps making the transition," he says. Another area where Fidelity is focusing its efforts is in integrating the firm's RIA referral program more closely with its high-net-worth client services, he says.
    TD Ameritrade-which is part of the big three of the fee-based custodian industry, with Schwab and Fidelity-launched an RIA mentoring program in June that's also designed to service the swelling breakaway broker clientele.
    The program is headed by seven advisors, who each have gone through the transition. They serve on a mentoring council and hold panel discussions on the transition process. Brian Stimpfl, managing director of business solutions for TD Ameritrade Institutional, says the transitioning of breakaway brokers is a "significant" trend that is a focal point of the company's new initiatives.
    Another focus, he says, has been on technology, with enhancements to the company's VEO platform. In February, for example, TD Ameritrade integrated Morningstar Workstation in the VEO platform. A month later, the company rolled out a rebalancing tool, also integrated with VEO, which allows advisors to rebalance multiple accounts at once against preset asset allocation models. The application also allows advisors to pull together groups of accounts belonging to one client, and rebalance them as a whole.
    The tool reduces work that can sometimes require time-consuming manual entry of data to seconds of button pushing, he says.
    "Traditionally advisors have used homegrown solutions that involve an Excel spreadsheet or doing calculations on the back of an envelope," he says.  "This gives them a straight-through process that is quick and easy."
    In the works, he says, are features that would allow advisors to use VEO for chores such as requesting checks, changing addresses and resetting identification numbers-activities that normally require a telephone call or at least an exchange of e-mails.
    The firm also has plans to expand its online form entry features by expanding the number of forms available and allowing them to be filed online. "When we think about our platform and what we provide for advisors, we think of how we can save advisors time, how we can save them money," Stimpfl says. "Lastly, advisors have told us what's most important, aside from those first two items, is how we can help them grow their businesses."
    In addition to technology upgrades, he says TD Ameritrade continues to add to its list of third-party providers who offer discounted products and services to the company's advisor clients. The company currently has about 60 software companies as well as companies that sell discounted computer hardware, office furniture and temporary office space.
    TD Ameritrade will also offer a second coaching program this year in conjunction with CEG Worldwide. The program, Stimpfl says, is discounted from $20,000 to $16,000 for TD Ameritrade advisors.
    While the three dominant players in the fee-based custodian space roll out services, competitors are also taking aim at the market by rolling out value-added features. At LPL, fee-based assets under management have doubled since 2004-a time during which new tools and services have also been added. "What we try to encourage is to have them outsource to us those things we can do more efficiently or less costly than they can," says William Morrissey, senior vice president of LPL's Advisory Consulting Services.
    One of the company's focuses has been on providing platforms that scale according to the needs and capabilities of the advisors using them. The company's Optimum Market Portfolios platform, for example, offers fee-based advisors a turnkey solution that offers a subadvised family of funds, with asset modeling, rebalancing and subadvisor due diligence handled by LPL. The platform, launched in September 2003, has grown to close to $2.5 billion in assets under management.
    The company's Personal Wealth Portfolios, meanwhile, are designed for advisors who want a higher degree of customization. It provides advisors with the ability to blend subadvisors and a choice of a 24 asset allocation models, Morrissey says.
    The company has also put a focus on training, launching a "Fast Forward" program last year that involved a road tour of training sessions that hit 12 cities and drew participation from 2,200 advisors.
    This year, the program will visit six cities and focus on practice management, Morrissey says.