I started my RIA firm in 2012 in my parents’ basement. I am proud to announce that we crossed the milestone $100 million mark in regulatory assets under management earlier this year. This is a number I could not fathom when I started and had to beg a certain RIA custodian to give my firm a shot on their platform.
I was leaving an RIA to start my own venture and my hope was to continue working with the same custodian, making the transition process as seamless as possible for my clients. But the custodian had a strict minimum for new RIAs, and I wasn’t there yet. I was shown the door.
Dejected but undeterred, I interviewed each of the other major custodians and lobbied them for an opportunity. Time was of the essence. I already had quit my prior RIA and the more time I spent without a custodian, the more I risked losing clients.
If you're like me, you like your custodian a lot, you just don’t love them. And you know your practice has grown despite your custodian, not because of them.
Thankfully, I found a custodian who believed in my story and vision for the future. They provided the platform I needed to create my firm – trading, custody of accounts, web interface for clients, statements and a solid brand name to stand behind me. However, in hindsight, they provided very little else.
If you are like me, you like your custodian a lot, you just don’t love them. You know they could be doing more for you and your clients. You also know that your practice has grown despite your custodian, not because of them.
Although these firms provide the RIA industry a lot of support, they can do more to help our firms grow and also serve our clients better. Here are a few.
Referrals: Give us some leads. I have placed assets with three different custodians over the past eight years. I have never received one lead from any of them. With all of the money these firms spend on marketing, wouldn’t it be great if they spread the love around some? I recall asking one bank about the referral program they advertise on their website and they quickly lowered my expectations on referrals – “Don’t count on it.”
Administration: Help us with the paperwork. Many of the major custodians also have large brokerage businesses where they deal with the public through call centers. Wouldn’t it be sweet if these same call centers could process our account opening paperwork (perhaps everything but our client agreements) for RIA clients? When Mr. Jones decides to open an account with us, it would be great to have an option to get the custodian on the line and have them handle the rest of the administrative process. Not every firm would take advantage of this service, but this would be a great add-on for young firms who do not have the resources to hire their own administrative staffs.
Partnership “dating” opportunities: Help us network. Back when I was begging custodians for a seat at the table, I bet there was another advisor in the same shoes somewhere. Wouldn’t it be great if custodians would take steps to introduce upstart advisors to each other for partnership opportunities? My current business partners have been hugely instrumental in the growth of my firm, I just wish I had met them sooner.
Service teams: Make us look good. There is nothing more frustrating than dealing with a service team rep who provides misinformation. As the custodians grow, their service employees are becoming greener and greener. I’m a firm believer that clients don’t fire advisors over account performance, however service issues can be deal-breakers. We spend so much time and effort courting clients and getting them to say yes to us that we cannot afford to be misinformed by a custodian’s inexperienced service team. Many custodians think they are solving this problem by having dedicated service teams that cover specific firms, but this alone is not the solution.
Don’t compete with us: OK, who am I kidding? Most RIA custodians also deal with the public directly. We can live with that fact because we have a competitive advantage inside of our RIA firms that the custodians can’t match – independence. However, there are times when our custodians offer the same products cheaper to the public than they do to RIA clients. This creates a channel-conflict for the smart client who is in-the-know.
Wouldn’t it be great if custodians introduced upstart advisors to each other for partnership opportunities? My current business partners have been instrumental in the growth of my firm, I just wish I had met them sooner.
More free conferences: RIA advisors are invited to free conferences and events on a regular basis, however, many of the big custodian conferences come with a sometimes four-figure price tag. This cost can be prohibitive for small and growing firms.
Technology: Every RIA custodian has invested heavily in their tech infrastructure, but this is still a huge area of improvement. At my RIA, technology is my biggest cost after human capital. Because of the gaps in the custodian’s offerings, I own a patchwork of disconnected systems that I have bought on a one-off basis from a litany of vendors. I have to log into these systems separately and most don’t talk to one another. Low-hanging-fruit for custodians: CRM, Financial Planning, Portfolio Construction and Performance.
Minimums: In many ways the custodian holds the keys to the front door of firm ownership for aspiring RIA entrepreneurs. Minimums, which at some custodians can reach nine-figures, provide a structural impediment – especially for young advisors, women and minorities.
To be sure, these relationships can be a two-way street. That is, there also are steps RIAs can take to help facilitate a better relationship. For starters, if you've been assigned a relationship manager, don't just bring them all of your complaints, try to be their friend. Beyond that, take advantage of their technology. Some custodians offer a "scorecard" that shows how well each RIA has adapted to technology. There may be some cost savings or efficiency to be gained.
In a nutshell, here are three more ideas for RIAs:
• Also, attend the free stuff. Custodians often provide no-cost educational opportunities. Sign up and go!
• Stop asking for exceptions. Custodians have strict rules that govern how they conduct business. Accept their rules and abide by them. Don't wear out your welcome.
• Learn their platform. There could be things that you're not taking advantage of like discounts, or technology, or products simply because you didn't know about them. You could be missing out.
There are over 12,000 RIAs in the U.S. collectively managing over $70 trillion in client assets, a 300% increase since 2001. And the business of custody for those assets is very lucrative. The two sides — RIAs and custodians — exist in a symbiotic relationship. Neither can fully exist without the other. So as RIAs grows, so do the custodians. And RIAs want to view our custodians as a true, albeit arms-length, partner who is a positive factor in our success and not a deterrent.
