What Do Advisors Want from Custodians?

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.