Pershing adds $12B in net new assets amid spike in new RIA clients

Even as low interest rates crimp revenue, BNY Mellon is funneling more money into Pershing’s RIA custody business — and it’s seeing results, according to the global bank’s CEO.

“We've got plans to do more and to continue capturing market share,” CEO Todd Gibbons said Oct. 16 on the company’s third quarter earnings call with analysts. He noted that the bank was investing in sales, marketing and the underlying advisory business platform.

Approximately 50% more RIAs have signed on with the custodian this year than in 2019, Gibbons said, attributing some of the growth to custodian consolidation. The bank doesn’t break out the specific number of RIAs joining each quarter.

Pershing, which services both RIAs and broker-dealers, reeled in $12 billion in net new assets in the third quarter, according to BNY’s earnings. Gibbons didn't elaborate on the sources of the new asset flow, though incoming RIAs likely served as a portion of it.

The RIA segment of Pershing’s custody division has long piqued BNY Mellon’s interest. In 2018, the bank invested an additional $50 million in that unit. However, Pershing’s revenue dipped 6% year-over-year in the third quarter to $538 million.

Money market fund fee waivers cost the bank $73 million in the custody division. When interest rates are low, asset managers often cut their own fund fees so that client returns don't sink too low or go negative. In the third quarter, the fee waivers cut Pershing’s revenue by $60 million, according to the company.

Despite the expenses, the period brought “actually pretty healthy growth,” Gibbons said. He later added that, “It'll be good to get these fee waivers behind us.”

Clearing services fees at the bank, which are almost entirely attributable to Pershing, also dropped 5% from the year-ago period to $397 million.

However, BNY Mellon is optimistic about the RIA industry and its position within it, according to Gibbons.

“The advisory business is growing rapidly, and we think we can capture more of that,” he said, describing industry consolidation as an opportunity.

Just this year, three custodian deals have closed: Charles Schwab, the largest custodian in the marketplace, purchased former competitor TD Ameritrade. Morgan Stanley and Goldman Sachs also entered the marketplace, closing their purchases of E-Trade and Folio Financial.

In addition, Gibbons highlighted that Pershing could help gather assets for BNY Mellon’s proprietary funds. Earlier this year, the bank’s asset management arm introduced its first ETFs, including two zero-fee funds. Following their launch, Pershing started offering a pricing incentive for RIAs who use BNY Mellon’s eight ETFs in client portfolios.

Since inception, BNY Mellon’s ETFs have collectively gathered more than $274 million in assets, according to the bank.

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The firm also said it would introduce proprietary models to its RIAs earlier this year. A BNY Mellon spokesman declined to comment on when they would become available to advisory firms.

While Pershing is open architecture, “it's a platform where there's real estate for some of our product and probably more potential there,” Gibbons said.

Pershing recently tweaked its target market of RIAs, reducing its threshold to advisory firms with $100 million in assets. Its broker-dealer clearing unit recently lost multi-billion-dollar giants BMO Harris Financial Advisors and M&T Bank’s retail brokerage to rival LPL Financial.