Independent advisors rely on custodians for technology, products and support. But RIAs with low AUM don’t always have access to them. Where should these firms turn? Seek out smaller custodians. Check out TAMPs. Or plead your case to the big guys, industry insiders say.
The custodian’s RIA channel business model is centered on growth: More advisors with more assets means more revenue.
Fidelity sets a platform minimum of $30 million, according to Todd Roadman, a senior vice president at Fidelity Clearing and Custody Solutions, who said in an email that the custodian typically connects firms under $50 million in AUM to larger wealth management firms they can partner with.
Other custodians, including Schwab and TD Ameritrade, do not have official minimums and say they look at other indicators.
“We take into consideration a firm’s assets, growth prospects and its business plan, among many other factors,” says TD Ameritrade Institutional spokesman Joe Giannone. “Size is a factor, for sure, but we look at the whole picture.”
As more advisors
“I try to talk [clients] out of investment management,” says Kaleb Paddock, a sole practitioner at Ten Talents Financial Planning, who manages a little over $800,000 in AUM and charges monthly and annual fees. Investing has become commoditized, he says, and clients don’t need someone to do it for them, or charge high fees for it. “It’s not that complicated. It’s not rocket science.”
There are options for financial planners with low AUM. For one, advisors can make the case to a custodian that they will be lucrative in the future.
“One of the main things we look at is a firm’s commitment to driving growth and, ultimately, building a professionally managed business,” said Gabriel Garcia, head of relationship management at BNY Mellon’s Pershing Advisor Solutions, in an email. While Garcia’s company requires no minimum AUM, a typical RIA makes a commitment of $150M or greater, he said, noting that the firm provides options for RIAs of all sizes, including a TAMP.
Some smaller custodians, such as Shareholders Service Group, service RIAs with little or no AUM.
XY Planning Network advisors, such as Ten Talents’ Paddock, have access to TD Ameritrade through a partnership intended to help grow fee-only RIA practices.
“It’s a huge cost savings to me,” Paddock says, who pays $421 a month to be in the XY Planning Network. He adds: “For that $800,000 [in AUM] that I manage, I use TD Ameritrade, and I don’t pay any basis points for that.” He also notes that there are significant benefits, especially for small firms, in using a well-known brand with an integrated tech platform. “It does give clients confidence,” Paddock says.
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Advisors can utilize a TAMP as well. Through custodial partnerships, Envestnet allow advisors to hold assets on a custodian platform when they use the TAMP’s services, according to Jean Hempel, managing director for enterprise consulting at Envestnet’s RIA Network.
“It gives advisors an opportunity to work as an independent RIA without having to contract directly with the larger custodians,” she says. In addition, it can save money. “Your custodian fees tie in to the assets you have on the platform,” she adds.
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Fidelity says its minimum AUM requirement serves a purpose. “Minimums are set to ensure that Fidelity can accomplish our goal in providing the best service and client experience to all our clients, which includes making investments in our technology and other offerings,” Roadman said.
Regulatory concerns and expenses also play a major role, according to Robb Baldwin, CEO of TradePMR, a Florida-based custodian with over 700 RIAs.
Custodians have to monitor transactions, which includes sending regulators routine, and costly, documentation such as trading activity and fee billing, he says. TradePMR receives more requests regarding small advisors who make trades less frequently.
“It’s getting concerning that some of these advisors may be part-time or they’re not fully focused on advising their clients,” Baldwin says. “From that standpoint, there is the possibility of more regulation and more cost that firms like ours try to — or need to — stay away from.”
