In a few days, I’m going to be hosting a roundtable discussion, at Joel Bruckenstein’s T3 Enterprise conference, with executives of independent custodians and independent broker-dealers. We have a lot to talk about, and I’d like your help to shape the discussion.
One issue is pricing. After going through a really interesting exercise with my Inside Information community, I’m beginning to think that all the recent talk about lumping all the various custodial revenue sources into a single fee is not a good idea.
Why? For the same reason that the AUM revenue model is eventually going to be replaced in the financial planning/investment advisor market. A custodian doesn’t have a lot of additional expenses for a $10 million account versus a $100,000 account – and the same is true of advisors. So why should that $10 million account have to pay a much higher custodial fee than the $100,000 account.
Of course, you could argue that there would be breakpoints for larger advisory firms with more assets, taking that fee down lower. But then you have a situation where an advisory firm with lower AUM, but with a couple of $5 million accounts, would have those large accounts paying 10 basis points, while the same $5 million amounts would be paying a custodian 5 or 3 basis points if they were at a larger firm.
The more I think about it, the more I like a pay-for-the-services-you-incur approach, where clients pay for the transactions as they happen, and advisors with fewer trades pay less.
And if the custodians feel that they need to be paid extra for their increasingly sophisticated platforms, then they could charge a flat fee on top of those costs.
But that’s what I think. What questions or issues do you think I should raise about custodial and broker-dealer pricing with my roundtable participants?
I have other questions.
One relates to the slow-walking of automated onboarding, with e-signatures. Most of the custodians still require paper forms and a wet signature whenever accounts are being transferred. But a few custodial firms – Apex Clearing and TCA by E*Trade – are showing that the wet signature is not totally necessary when moving client assets efficiently, compliantly and successfully. Auto- and paperless onboarding would be enormous time-savers for advisory firms. What’s the holdup?
I see one possibility. This capability would make it much easier for advisory firms to change their custodians or broker-dealers – right? If clients could move their assets from custodian A to custodian B with a few clicks of the mouse, the assets at custodians A and B would become far less sticky than they are today. This is a convenience that risks losing assets. It would make the marketplace more fluid and competitive.
Are you curious whether that’s a consideration as the custodians evaluate whether to provide these automated onboarding conveniences to advisors? Or a more complete explanation of why some firms can offer this to their advisors, while others are saying they cannot?
Also, more generally:
What is the most important factor when selecting a custodian? (I’m expecting everybody to say quality of service trumps everything, followed by cost, but maybe there’s something I’m missing.)
What additional services or conveniences do you wish you could get from your custodian or broker-dealer that you’re not getting now?
What additional or improved services would make you consider switching from one custodian (which doesn’t provide them) to another (which does)? (I can think of a few, like training programs for operations staff members, dedicated service teams or a particular type of built-in software capability.)
What are the most valuable services (other than from your service team) that you are currently receiving from your custodian or back office platform? (Practice management counseling; rebalancing capabilities; client portal, etc.)
How would you compare the sophistication of your custodial or broker-dealer platform with the sophistication of the off-the-shelf programs that you’re using – CRM, portfolio accounting, financial planning software? More or less sophisticated? Much more or less?
What else would you like me to ask the roundtable participants?
The more you educate me, the better questions I can ask. If I get really good or interesting answers, I’ll write about them and give you a window into custodial thinking on these various issues. Please provide your input through APVIewpoint, using the “comment” feature on this article.
Bob Veres' Inside Information service is the best practice management, marketing, client service resource for financial services professionals. Check out his blog at: www.bobveres.com. Or check out his Insider's Forum Conference (for 2019 in Nashville, TN) at www.insidersforum.com.
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In a few days, I’m going to be hosting a roundtable discussion, at Joel Bruckenstein’s T3 Enterprise conference, with executives of independent custodians and independent broker-dealers. We have a lot to talk about, and I’d like your help to shape the discussion.
