A midsize wealth manager seeking to expand its advisory business is taking a novel approach from rivals by outsourcing broker-dealer services to its custodian. It’s a move that falls into the industry’s ongoing trend away from commissions and toward advisory fees, and illustrates a new twist in firms’ hunt for costs to cut as business models change.
The move by ProEquities to replace itself with Pershing Advisor Solutions as the introducing BD for its primary type of RIA account, the Advisory Management Plus Platform, follows several years of discussions and due diligence among the firm’s executives on the best “transformational path” to take away from its “old transactional model,” according to ProEquities President Elizabeth “Libet” Anderson. While unrelated, the first wave of some 7,200 accounts migrated to the Pershing BD as ProEquities
ProEquities, whose parent company is owned by the Tokyo-based giant Dai-ichi Life Insurance, anticipates that the remaining 6,500 accounts will move to Pershing’s BD in early October, Anderson said in an interview. Since BNY Mellon’s Pershing is ProEquities’ only custodian, she notes that the movement of roughly $3 billion in assets under management is technically flowing from Pershing LLC, another BD owned by the custodian, to Pershing Advisor Solutions. The Birmingham, Alabama-based wealth manager opted for the new setup as opposed to picking a different custodian or the more common tactic of working with multiple ones.
“We knew we needed to get into a more competitive position,” Anderson says, explaining the firm’s reasoning for not going multicustodial. “It always sounds great. At a firm our size, you end up becoming meaningless to all of them. Pershing has this more updated, modernized ability through Pershing Advisor Solutions to be broker-dealer of record.”
The change is cutting and simplifying the fees paid by clients and also enables ProEquities to delegate account openings and other operations to Pershing in order to assign the corporate staff to new roles supporting the wealth manager’s 495 financial advisors, according to Anderson. With hybrid RIAs and IBDs increasingly
Representatives for Pershing didn’t specify whether any other clients have made the same move, which ProEquities disclosed in March in its SEC Form ADV
“Our unified clearing and custody platform provides us with a unique advantage in the marketplace given the ongoing convergence of the broker-dealer and RIA business models,” Creekmore says. “As our clients’ needs evolve, we are experiencing growing interest in leveraging our unified platform and depth and breadth of capabilities. We are in constant dialogue with clients to support, validate, and help execute on their plans for accelerated growth.”
While it’s common for custodians’ BDs to work with RIAs that have no FINRA affiliation, the new setup for ProEquities stands out in its sector. The complications posed by the SEC’s Regulation Best Interest likely played a role as well in the firm’s decision “to not make the plunge” to multiple custodians, recruiter Jon Henschen of Henschen & Associates said in an email.
“This is a first I’ve seen where a broker dealer opts out of Pershing in favor of PAS with most firms that are dual-clearing-friendly having the clearing firm option and then, in addition, having the outside options,” Henschen says, noting that most IBDs assess a fee on assets held off their platform with a different custodian.
ProEquities received a payment of an undisclosed amount from Pershing as part of making the change, according to the Form ADV brochure, which states that the wealth manager must return a portion of the payment if the assets being transferred don’t reach a certain specified level or decline by 25%. In the disclosure, the firm identified four sources of business it’s losing and one that’s decreasing during the move, in the form of lower platform fees, revenue sharing, markups and other third-party payments from Pershing and fund managers.
“ProEquities expects that, generally, client costs and fees should be lower for accounts in which PAS serves as [introducing] BD,” the disclosure states. “As such, ProEquities has an incentive to remain as IBD to continue collecting fees. ProEquities has launched a conversion campaign to encourage all existing account holders to convert to PAS. ProEquities expects that at some point it will no longer serve as an IBD for any accounts and will require existing accounts either to convert to PAS, convert to a brokerage account or close.”
Thanks to the collaboration between ProEquities, Pershing and Envestnet as the wealth manager’s main advisory software, the firm’s clients will pay a single management fee even though the two other firms share performance reporting and billing duties, Anderson says. In terms of the corporate office’s staffing, Anderson plans to assign more roles to practice management and advisor Envestnet questions, avoiding the need for practices to contact the tech firm’s national helpline with most of their queries.
With more than 60% of its $109 million in 2019 revenue coming from commissions, ProEquities is behind other wealth managers in Financial Planning’s annual IBD Elite survey that have
With the rebranding to Concourse and other developments such as the firm’s adoption of Docupace Technologies’ software for digital signatures on forms and other uses, ProEquities is getting on the path to deriving a majority of its business from advisory accounts, Anderson says.
“It's on the horizon,” she says. “It's still another year or two out until we get to that level, although the momentum is definitely on that side.”
