Should Your RIA Add a Custodian?

If they keep custody assets with only one firm and that firm undergoes a major strategic change — due to an acquisition, for example — the advisor will have no immediate alternatives. Using more than one custodian mitigates this risk and hedges the exposure.

Custodian diversification also allows RIAs to offer clients more choice as a fiduciary and provides checks and balances. It may also provide a broader set of capabilities and resources for your firm and your clients.

There are several signs that might indicate the need to bring on an additional custodian, including:

• Catalyst: Your custodian was purchased by a new firm, and you are unsure whether the new custodian’s strategic direction aligns with your business needs.
• Service deterioration: When you need to call your custodian for assistance, you have long wait times, receive inaccurate information or speak with untenured associates. Simply put, you do not have direct access to a single contact person or small team that’s dedicated to supporting your firm. With some custodians, it’s not uncommon for advisors to have to reintroduce themselves each time they place a service call.
• Made to feel too small or unimportant: You feel like your firm has been lost in the shuffle because your custodian serves so many other RIAs.
• Limited flexibility: Your custodian offers rigid solutions and refers to policy often. They make it more difficult to find mutually beneficial solutions for your business and your clients when they are needed most.
• Competition: You are frustrated as your custodian’s internal wealth division/advisors and their promotional efforts/advertising seem to compete against you. You feel as if you are not aligned on the same side.

What to Consider When Choosing an Additional Custodian

If you decide to diversify your business, plan to conduct thorough due diligence so you can make an informed decision. Following are some of the key characteristics many RIAs look for in a custodian:

• Relationship-based, non-competitive culture: The custodian holds discovery meetings to listen and learn about your business’ needs and goals so they can support you in a meaningful way. Your firm has direct access to a relationship manager or team who knows you personally and communicates with you regularly. Importantly, the custodian does not have its own internal advisors who will compete with you for clients.
• Innovative technology platform: Your custodian’s technology capabilities will directly impact the efficiency and accuracy of your services. Therefore, make sure a custodian has an open-architecture platform that integrates with your preferred third-party solutions or also offers a bundled technology platform that increases efficiencies and may potentially eliminate costs. Personalized user support and training should also be provided for all software and systems.
• Flexible investment solutions: The custodian is product agnostic as opposed to developing its own proprietary products, allowing you to select the best available products to meet the needs of your clients.
• Integrated banking products and solutions: Many investors today expect their RIA to provide a holistic financial experience that includes traditional banking products and services such as checking accounts, loans and lines of credit. A custodian that offers these services to support your clients’ needs may be essential going forward.
• Flexible and transparent pricing: There’s more to pricing than just the bottom line. A custodian’s pricing structure should be clearly defined and easy to understand as well as flexible so you can make changes in the future as your business needs change.
• Comprehensive custody and clearing services: The custodian is flexible to your needs. It is focused on providing exceptional service to all RIAs, regardless of size or ability to hit aggressive growth goals. The custodian’s service, support and solutions fit your clients’ needs, based on their assets and accounts, and are scalable to meet the long-term vision of your business.

Greater Support for Your Business

Instead of feeling supported, today’s RIAs may face rising platform minimums, service via call centers, competing offerings and other obstacles that make servicing clients and running a successful business challenging.

Now may be an ideal time to consider adding a custodian that may be more in aligned with your values, mission and understanding of what is important to your business and your clients.

(Image: Adobe Stock)

Gino DeRango is senior vice president at Axos Advisor Services.