Advisors who are interested in starting their own advisory firm, or breaking away from an existing one, face a number of important business decisions – from how they want to structure their firm, to what clientele they will target, what software they will adopt, and when/whether they want to hire staff or outsource certain responsibilities. For advisors who want to provide investment management services to their clients, though, and intend to play an active role in managing and implementing client portfolios, one of the most important decisions they face is which RIA custodian they should work with.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore how to choose the best independent RIA custodian for your business, including the advantages of working with one of the “Big Four” custodians (Schwab, Fidelity, TD Ameritrade, and Pershing Advisor Solutions), as well the reasons why some firms may find a better fit among smaller “second-tier” custodians with more niche offerings for certain types of RIAs!
The first thing to consider when contemplating an RIA custodial relationship, is whether a custodian is actually needed in the first place. For advisors who are simply going to charge financial planning fees, and bill clients with a third-party payment processing solution for those finanical planning fees, and while letting clients continue to be self-directed with their actual portfolios (or serve clients who simply don’t have portfolios to invest), then the advisor does need to become an RIA, but doesn’t necessarily need an RIA custodian. However, given the dominance of the AUM model, and the number of advisors who do want to manage investments, most independent RIAs will ultimately form a relationship with one or more of the top RIA custodians.
For those independent RIAs that do need to use an RIA custodian, the overwhelming majority ultimately custody their assets at one of four major firms: Schwab, Fidelity, TD Ameritrade, and Pershing Advisor Solutions. Due to their sheer size and market reach, these providers all already provide the core technology necessary to trade in client investment accounts, hold a wide range of standard investment assets, facilitate the advisor’s AUM billing, and do it all at an incredibly low cost. In fact, there is generally no platform fee to work with these custodians at all, and instead these platforms make their money indirectly through ticket charges, asset-based wrap fees, 12b-1 and similar revenue-sharing fees via their NTF (No Transaction Fee) platform, receiving a fee for serving as the transfer agent, or making a small spread on the money market or other cash positions that clients hold.
Notwithstanding how commoditized the core services of an RIA custodian have become, though, each does still have its own style or area of focus. Pershing Advisor Solutions aims to work primarily with larger RIAs that are specifically focused on growing a large enterprise business. TD Ameritrade is known best for their VEO One platform, which essentially functions as an open architecture hub that most other advisor technology can integrate into. Fidelity is increasingly being known for their Wealthscape platform, which is increasingly being positioned as a “true” all-in-one platform, especially for comprehensive wealth management firms that combine together investment management and financial planning. And Schwab, as the largest of the four, is arguably the least differentiated, but handles the widest range of firms with what is usually the lowest cost, in part because they’ve literally been doing it longer than (and are larger with more scale than) any of the other RIA custodians.
Despite the popularity of the Big Four custodial firms, there are also a wide range of “second-tier” custodial firms (meaning “second-tier” in terms of size, not necessarily quality) that offer solutions for many independent RIAs. Shareholders Service Group (SSG) is a platform that is actually built on top of the Pershing platform, but SSG specifically services the “small RIA” marketplace, and may be of particular interest to newer firms which do not meet the typically $10 to $20 million AUM minimums of many custodians (including zero-AUM startups). TradePMR is particularly well known for their EarnWise mobile solution that allows you to manage most of your investment needs as the advisor directly from a smartphone or tablet. Trust Company of America is best known for their really efficient model-based trading tools, appealing to both advisory firms that systematize their investment process, and TAMPs that serve other RIAs. Folio Institutional is also known for being a particularly tech-savvy platform, for advisors that want to be completely paperless, and have good tools to manage model portfolios, as well as those who work with smaller clientele where Folio’s ability to trade fractional shares is very appealing. Apex Clearing is a newcomer that is actually so “tech-savvy” that they’re basically just a giant lattice-work of technology APIs that communicate with other advisor technology APIs, but without much of an “interface” layer on top (and as a result, most independent RIAs that work with Apex will work with them through another middleware provider like RobustWealth, AdvisorEngine, or InvestCloud to replace the kind of advisor dashboard and workstation that most of the other RIA custodians already provide). Other notable firms include Millennium Trust Company for RIAs that do a lot of alternative investing, and National Advisors Trust Company for firms that do a lot of trust business (and/or want the opportunity to be a shareholder in their platform).
Of course, even once you narrow down your potential RIA custodian options based on fit, it’s important to spend some time really looking at their technology, and their investment options, and make sure that their core systems really do fit what you do, how you serve your clients, and how you want to do business. But the key point is to acknowledge that no single custodian is best for all advisors, and given the substantial costs of switching from one RIA custodian to another, it is worthwhile to try to figure out upfront which custodian is the best for you, and not just in the short-term, but ideally in the long-run too!
source https://www.kitces.com/blog/best-ria-custodian-top-4-independent-platforms-and-second-tier-niche-providers/?utm_source=rss&utm_medium=rss&utm_campaign=best-ria-custodian-top-4-independent-platforms-and-second-tier-niche-providers
No comments:
Post a Comment