The choice of an advisory firm’s custodial affiliation is easily one of its most important business decisions. The advisory firm is the front end of the client relationship, but it entrusts client assets, and key aspects of their service, to a custodian that safeguards the money and provides the underlying platform. And given the logistical challenges of switching between custodians, inertia often leads firms to stick with the same custodian for years or decades, even when a better fit might exist.
Many firms have chosen to work with the largest players in the RIA custodial space, benefiting from their size and scale. But the impending merger of Schwab Advisor Services and TD Ameritrade Institutional will reduce the number of options available for RIAs and force firms currently on TD’s platform either to be subsumed into Schwab’s platform or to switch to an alternative custodian. And while RIAs that take no action might face the specter of being relocated to a custodial platform they didn’t choose, other firms might take a more active approach in considering whether a move to one of a growing number of custodial options might be in their best interest.
In this guest post, industry commentator Bob Veres explores the range of considerations for firms thinking about moving on from “Schwabitrade” or from their current custodian, offering profiles of seven alternative platforms and reviews from advisors currently using them.
As a starting point, advisory firms can evaluate custodians on several levels based on their specific needs, from the cultural fit to their technological capabilities to the customer service a firm can expect to receive by determining whether the platform has a tiered structure where the largest firms get the best levels of service. An additional consideration is whether the custodian has a retail presence, as those without one won’t be competing directly with advisors in the marketplace (and the custodian’s management will be focused on the needs of advisors on the platform rather than spending much of their time trying to bring in more retail business).
Another differentiator between custodial platforms is their pricing structures. While some of the largest platforms may (nominally) offer their service for ‘free’, they still need to bring in revenue somehow (often in the form of below-market-rate cash sweep accounts). Other custodians offer a range of fee options, from ticket charges to flat subscription fees. This optionality can give fee-conscious advisors (and their clients) the ability to choose what makes the most sense for them.
Ultimately, the key point is that a growing number of custodial platform options are available for advisory firms, and the range of unique service cultures, technological capabilities, and pricing structures offers firms the opportunity to find the one that best suits their (and their clients’) specific needs!