Alternative Custodian Options For Independent RIAs In The Wake Of Schwabitrade

Author: Bob Veres

Guest Post

RIA Custodians Featured In This Article:

BNY Mellon/Pershing | Shareholders Service Group (SSG) | TradePMR | SEI | Altruist

The acquisition of TD Ameritrade by the Schwab organization was, by most accounts, primarily driven by the Schwab executive team’s desire to nearly double the retail side of its business. But the corresponding impact on the advisor space is the (largely involuntary) movement of an estimated 7,000 RIA firms to a custodian that they did not, of their own volition, choose to affiliate with. Add to that the fact that in many ways TD Ameritrade was regarded, culturally, as the opposite of Schwab, and you have the possibility that many advisory firms are now weighing their custodial options.

What ARE their options? They could make a definitive decision to stay with the new custodian, which means they won’t have to repaper their clients—a chore most advisors would rather avoid if they can. They could wait and see how their service level changes—with questions abounding of whether there will be a service downgrade for “smaller” firms with less-than-$200 million, and especially those with less than $20 million who in the past were often rejected from Schwab for being “too small” (thus why they built their practices on the more accepting TD Ameritrade in the first place).

Or they could take advantage of the increasingly convenient remote onboarding technology to move their clients to a custodian whose culture more closely resembles what they experienced at TD Ameritrade.

In this article, I’m going to profile some custodial alternatives that the latter group of advisors might consider—a first step in their own due diligence process of looking at the alternatives. The alternatives range from Pershing, which was, even before the merger, the second-largest independent custodial option when measured by client assets (at least when including their broker-dealer hybrid RIA assets), to newcomer Altruist, which (by virtue of its newness) offers the most advanced software platform. There are long-established firms like Shareholders Service Group and TradePMR. There is a newer platform created by the SEI organization, which services the largest TAMP operation in our profession.

In other words, there is no shortage of attractive options for advisory firms that are looking for a new custodial relationship. In fact, in the minds of many observers, the merger that seems to diminish competition in the RIA custodial space might end up increasing it, by ultimately driving more advisors and assets to alternative platforms, whose cultures are a better fit, and whose scale could rise dramatically in the next year or two.

There are a few points to make here that I believe advisors should keep in mind as we sort all this out:

1) The “Schwabitrade” transaction was NOT a merger. It was an acquisition. The united company is controlled by Schwab, and the acquired firm will be expected to live under Schwab’s culture. The announcements have been mixed, but Schwab executives have pointedly not promised to port over all the software integrations that TDAI had facilitated, and advisory firms will be required to convert from Veo One (and the open architecture concept) to Schwab Advisor Services technology. It will be difficult for Schwab’s legacy platform to “integrate” with Veo, though it has been announced that the free iRebal program will be available to all Schwab-affiliated advisory firms.

The diminished integration, and diminished openness to integration, is not a disaster; most advisors I talk with who clear through Schwab generally like the tech they’re using and seem not to miss (too much) the integrations that have never been available to them in the first place. But the platform shift will certainly reduce the opportunities for innovation in the advisor software space. When I talk with emerging tech companies, they inevitably tell me that TDAI was the first custodian to welcome their integration, and that the open APIs in Veo One allowed them to create their own direct feed into the custodial system. That welcoming environment has already come to a halt. But, as you’ll see shortly in the profiles of custodial alternatives, the open platform concept is being widely embraced pretty much everywhere else, so emerging tech companies will be able to get deeper software integrations with Schwab rivals, and advisors who want to be closer to the cutting edge of innovation may migrate to these open platform alternatives.

2) As mentioned earlier, former TDAI advisors do NOT have to completely repaper their clients who move to the Schwab platform. I talked with several advisors who went through a similar experience—TDA’s acquisition of Scottrade, including its advisor custodial division—and they report that their clients went through a very smooth “negative consent” process, where clients were sent email messages about the impending transfer of assets and were invited to object—or not. Few objected.

“Honestly, it was a pretty smooth transition,” says Erin Baehr, founder of Purposeful Money in Stroudsburg, PA—who was forced to switch from Scottrade to TDAI after the acquisition, and is now moving client assets to Schwab. “I had to do a new advisor agreement with TD Ameritrade for my RIA,” she says (and TDAI advisors have been going through the same process as they move to Schwab), “but for clients, it was all done automatically. They got lots and lots of communication—so much that after a while they just basically ignored it.”

That doesn’t mean there is no paperwork hassle. Robb Baldwin, founder and CEO of TradePMR in Palm Beach, FL, notes that there can be a lot of legalese around IRA designations and custodial arrangements, cashiering agreements, and occasional FINRA qualification rules. “People think of repapering as always establishing new account documents,” he says. “But there are a lot of arrangements that have to be properly re-documented.”

Peter Mangan, CEO of Shareholders Service Group (SSG) in San Diego, agrees that the process can become more than just a negative consent message. “They might not need everything repapered,” he says, “but if there are margin agreements, they might not transfer over smoothly. If there are any extra services you’ve turned on at TD, you might need to sign a new form for those.”

SSG President Dan Skiles adds that ancillary agreements can be complicated. “As an example, it’s no secret that TD has paid Orion on behalf of advisors to get new assets on their platform,” he says. “Will Schwab be willing to continue that?”

What is the biggest downside to having your custodian acquired? “I miss having all the history on the account,” says Baehr. “With the changeover from Scottrade to TD, we had to give up access to a lot of the older data. I miss being able to see all the history going back.”

3) There is no reason for advisors to act precipitously. The merger was consummated, but the transition from one software platform to another may not happen for a year or more, and then there may be another year or two while Schwab decides how to tier its support levels to different size RIA firms.

“In my experience,” says Mark Tibergien, former CEO of BNY Mellon/Pershing, “it takes three years before there is a full integration. Once you consummate the transaction, then [the acquiring company] has to think about which people it’s going to keep. Then you have to figure out what locations you are going to invest in, what your client experience is going to be, and how you integrate not just the technology, but the workflow, operational elements, and service.”

He estimates it could be up to another year, potentially longer, before TDAI advisors are directly impacted, and another two before the full impact of the transition is well understood.

In other words, the merger may not be an imminent issue for advisors who are swept up into the new custodian. But there is never a time when you can afford not to review your options.

4) The zero commission decision was primarily motivated by the desire to hang onto market share, and perhaps generate new business, on the retail side. It was never intended to be a selling point on the institutional/custodial side, and there’s every indication that it would not have been.

One clue that this is true is the fact that many of the custodial competitors didn’t follow Schwab and TD into zero-cost trading territory, and haven’t suffered much apparent loss of market share as a result.

“We reduced our ticket charges down to what we consider to be a minimum,” says Baldwin. “But when we did our phone calls with advisors, they told us: just keep offering the services you offer, answer the phone, don’t send me to a call center in India, and I’ll pay ticket charges as long as I get good service.”

“We went through an analysis in the last couple of months,” adds Mangan. “We decided that [zero commissions] doesn’t treat our business or the customer’s relationship with us in the right way. If we’re giving away for free something where there is actual cost and risk to the firm, it suggests there is no value to it, which is entirely false.” He adds: “Advisors told us really clearly that the cost of a trade is a way of paying for our service, and they’re happy to pay if we intend to keep our service levels high. That cost [currently $4.95 a trade] is easily justifiable.”

One advisor, he says, actually said he would have been very disappointed if SSG had followed “the lunacy” of zero commission trading. “He told us, I feel it is easy to explain to clients that there is no such thing as a free lunch,” Mangan recalls; “that there is a cost and a value to executing a trade.”

Mangan says that his firm intentionally doesn’t participate in some of the revenue streams that Schwab is using to make up for the loss of trading commissions, including mutual fund 12(b)-1 fees and payments from the entities that do the actual clearing.

“On many of those free trades, they actually receive some payment for order flow,” he says. “So it is not exactly true that there is no cost to the customer in giving their order to Schwab. We don’t get any payment for order flow; we route our trades to the best bid or offer. Those order flow payments are perfectly legal,” Mangan is quick to add, “but we decided not to do it because we think it muddies the water. When we’re working with advisors who are fiduciaries for their clients, and that is all we do, it doesn’t make sense for us to be selling their orders for our benefit. We’d rather charge a commission.”

Cultural Shifts Amongst RIA Custodians

It’s hard not to think that all these major shifts will have an impact on the working environment for financial planning firms. The cut to zero commissions (and the need to maximize other revenue sources), plus the giant acquisition and a renewed focus on gathering retail market share—all these things will affect the culture of the acquired advisors and the overall professional landscape of custodial platforms for RIAs.

So the question for many advisors becomes: what will my custodial partner look like in a year or two?

You can already see glimpses of a cultural shift as Schwab Advisor Services is reportedly becoming much more liberal with margin accounts and more aggressive in portfolio margining. The firm is actively pushing client upsells to Charles Schwab bank and Charles Schwab mortgage services. Schwab, unlike TD, also has proprietary funds, ETFs, and its own investment platform. [Yes, Schwab Intelligent Portfolios is nominally free, but it requires its investors to keep a large percentage of customer accounts in cash, in a sweep account where the company earns at least a 1% margin.] Will there be subtle or unsubtle pressure to shift the ex-TDAI advisor’s current business? Will this pressure change the way Schwab-affiliated advisors do business with their clients?

Meanwhile, shifting smaller advisors from service teams to call centers at least suggests a new spirit of frugality on Schwab’s service side.

Schwab’s traditional preference for larger RIA relationships might suggest another cultural shift for advisory firms under $200 million in AUM. John Malzone, of JJM Financial Group in Newtown, PA and Long Island, NY, expects to see Schwab proactively “clustering” smaller advisory firms, encouraging them to consolidate through mergers and acquisitions to gain critical mass that make them easier for Schwab to service as a group. “They will facilitate the introductions of smaller advisors to larger teams,” he says.

Malzone also speculates that the firm will encourage “organic” growth for itself by offering incentives to multi-custodial advisory firms to move assets away from other custodians—or even institute penalties in the form of higher fees if they do not. You might see Schwab facilitating business succession plans for its larger relationships, and given that it has its own in-house RIA organization, it might buy some of those larger firms and fold them into Schwab Wealth Management with minimal client repapering. (More competition for Schwab-affiliated advisors?)

Another advisor, who prefers to remain anonymous, undoubtedly speaks for many planning firms when he wonders if Schwab will match TDAI’s discounted $9.95 ticket charge for DFA funds. “I think having to pay more than that would send a lot of us packing,” he says. (Schwab reportedly charges $49.95 on most non-NTF funds to RIA firms who were unable to negotiate one of the custom-commission arrangements.)

What we know definitively is that many TDAI-affiliated advisors did not, of their own free will, shift their client assets from the “anti-Schwab” to “Schwab.” “I know that I am not alone when I say that I am very, very sad (almost angry),” one advisor wrote to me. “I attended one of my study group meetings yesterday, and we were quite unanimous in our very loud voice of objection to this being foisted on us. Many of us have learned through the years that Schwab is not an Ameritrade. We all get much, much better service for our clients with Ameritrade. Schwab has an attitude that does not include making life easier for advisors.”

At the very least, the merged Schwabitrade entity has its work cut out to retain a high percentage of the acquired RIA relationships. Hiring ex-TDAI CEO Tom Bradley in his new position with Schwab (overseeing services to RIA firms with under $100 million in client assets) was a darned good start. But advisors will need to hear more reassuring things about the environment they’re being forced to move into—and they will be reassured to know that if they don’t like the answers to their questions, they have alternative custodial options who will be actively competing for their business.

On the pages that follow, I invite you to browse through these profiles of alternative custodial platforms, looking for a cultural fit, more advanced technology, or a firm that will give a firm your size the same services that the profession’s largest custodian reserves for its largest RIA relationships.

BNY Mellon/Pershing: A Menu of Models

Advisory firm relationships:  700+

$ under custody: $800 billion+

Clearing platform: Pershing

Trading platform: NetX360

Platform rating in latest T3/Inside Information software survey: 6.90

Website: Pershing Advisor Solutions

When the new zero-commission pricing model for stock and ETF trades was announced, the executive team at BNY Mellon/Pershing took a different approach from its largest competitors. Instead of rushing to follow suit, the firm polled its advisors—and discovered that there was a diversity of opinion about the new revenue model.

“Some said, if I do the math on this, I would rather continue to have more cash management options,” says Ben Harrison, the company’s Managing Director and Head of Advisor Solutions. “Others said: I am buy-and-hold, I don’t do that many transactions, so I’m okay with paying nominal ticket charges and having access to more cash solutions. I don’t want to go to that new model.”

Still others told his team that their clients were seeing TV commercials about free trades, and they wanted to be able to offer the same thing.

Pershing had more options than its large competitors. Zero trading fees was, first and foremost, a gambit to one-up the competition in the advisor custodians’ retail businesses; free trading for advisors was an afterthought that would have to be provided in order to avoid an uprising on the institutional side of the fence. TDA and Fidelity had to respond to the Schwab initiative because (like Schwab) the bulk of their revenues comes from individual investors who would otherwise have flocked away from their platforms to the free trading alternative.

But Pershing lives in a different revenue environment. It doesn’t have a retail presence driving its decisions. Harrison says this gave his team the luxury of listening and thinking to the advisors it serves before responding.

“For some time before this, we had felt that the pricing model in the custodial landscape has been ripe for disruption,” Harrison explains. “There’s been this conflict that everybody is aware of, that has been just too daunting to address: that product fees pay a lot of the freight, and the spread on the cash sweep accounts was really subsidizing a big part of an advisory firm’s custody relationship.”

How to respond? After a long huddle, Pershing unveiled a solution that might change the economics of the advisor custody business—and also might force some of Pershing’s competitors to decouple at their pricing decisions on the advisor side from the consumer side. The solution was to give advisors a choice between three different pricing models. This, Harrison admits, will remain a work in progress, but for now, it addresses several goals. One was to provide a new level of transparency to advisor/custodian pricing. “We have to get paid; we are not a not-for-profit,” Harrison says. “We need to be a viable company that offers a resilient platform, especially in times of uncertainty.”

Another goal was to allow advisors to decide how to better align their—and their clients’—interests with the custodial revenue model. “We know that advisors use a variety of products,” says Harrison. “But we all know that some products are not as profitable for the custodians than others,” which, of course, leads to the platforms emphasizing or encouraging some at the expense of others. “And we know that cash is absolutely an important part of the equation,” Harrison adds. “Any time you move beyond sweep cash to portfolio cash, investors and advisors really care about yield. So we wanted to create a level playing field for products, where you have the option to pay one flat fee for access to equities and ETFs, mutual funds and fixed income, and have a hybrid or multi-tiered cash product available so you get some yield back into the marketplace.”

Pershing RIA Custody Pricing Options

On the surface, Pershing’s three pricing options are fairly simple. Option one is for the advisory firm to continue to pay trading costs as they did before. The tradeoff is a low-yielding sweep account, but this option provides access to a number of competitive-yield investment options for the cash allocation of client portfolios. Basically, business as usual, pre-Schwab’s zero-trading-costs announcement.

The interesting innovation here is that, at the time that the new pricing options were announced, BNY Mellon Investment Management introduced eight new passively managed ETFs that trade on Pershing’s platform for free no matter what model you choose. These new BNY Mellon Core ETFs are likely to attract assets from fiduciary advisors, because, in addition to zero-cost trading, they feature competitively low expense ratios ranging from zero (U.S. Large Cap Core Equity ETF and Core Bond Fund ETF) to 0.04% (U.S. Small Cap Core Equity ETF, U.S. Mid Cap Core Equity ETF, and International Equity ETF). Other offerings include a short-duration corporate bond, an emerging markets equity vehicle, and a high-yield beta ETF at prices ranging from 0.06% to 0.22%. Advisors who use these ETFs, even if they’ve selected the transaction-fee model, will encounter zero trading costs when they buy and sell them.

Option two? The same deal you would get from Schwab, Fidelity, and E*TRADE: free trades, but Pershing will make money on the cash accounts. “These days, there is nothing innovative about that,” Harrison comments drily. But the arrangement IS new to Pershing.

Option three is the real innovation. Here, advisors can opt to pay a flat subscription fee for all their custodial services and access to custodial technology. The fee will range from $25 a month per client account to $75, depending on the size of the account (larger ones will pay higher fees, contrary to what you were probably expecting; the arrangement is roughly akin to a small basis-point charge based on the size of the account, with an effective cap at $75/month), and this option opens up access to cash sweep options that pay competitive market rates. The innovation here is that, if you want those competitive cash rates, the client would have to have at least $100,000 allocated to cash. Below that, the yield will be nominal, so the best practice would be to use the sweep account only for wire transfers and to pay advisor fees.

Notably, in this flat-fee-per-account-based-on-size arrangement, any monies that a client has invested in the BNY Mellon ETFs are excluded from the portfolio size calculation. A $2 million portfolio invested entirely in Vanguard funds or Blackrock ETFs would pay the full $75 a month. But if all but $250,000 of that particular client account is invested in the in-house ETFs, then the client account would be treated as a $250,000 account (not the full $2 million account) and only pay $25 a month. (This monthly fee, to clarify, is per client account, not per client. So clients in the aggregate may still incur multiple monthly account fees across all their different accounts.)

As Harrison said earlier, this pricing menu is a work in progress. He points out that the standard custodial revenue model (including Pershing’s) also includes product fees paid by funds and ETFs, and larger fees paid for shelf space in the mutual fund supermarkets. For now, Pershing will continue to collect those fees, as its larger competitors do (though, it should be pointed out, not Shareholders Service Group, TradePMR, Foliofn, or Altruist).

For now? Harrison says those revenues are still being looked at. “That’s a fundamental infrastructure issue that we believe is going to continue to evolve,” he says. “We’re in the early innings of this pricing evolution.”

Harrison notes that custodians really can’t afford to reduce or eliminate product-based fees in this ultra-low interest rate environment, when spreads on cash are, shall we say, not filling their coffers the way they did a few months ago. But once rates go up and spreads loosen up, it might provide the custodial competition with an opportunity to revisit those product fees.

Pershing Opens Doors With Reduced RIA Asset Minimums

Pershing is a clear outlier in this series of profiles; even before Schwab’s acquisition of TD Ameritrade Institutional, Pershing was the second-largest independent custodian when measured by advisory firm assets. Thus, it is hardly a “niche” or “alternative” competitor in the custodial space.

But in the recent past, it was not possible for the majority of advisory firms to affiliate with Pershing; the firm has a relatively firm $250 million AUM minimum, and even firms above that threshold had to demonstrate a commitment to growth.

Now, Pershing has opened its doors to a much larger RIA cohort—basically all SEC-registered firms—meaning that SEC-registered RIAs (i.e., those with more than $100 million of AUM) discontented with a Schwab relationship can now consider a relationship with Schwab’s largest competitor.

“We still want to work with professionally managed, growth-oriented firms,” Harrison explains. “Lifestyle practices and sole practitioners are not in our bailiwick. We traditionally had a $250 million minimum; now we have a $100 million minimum,” he adds. “An SEC-registered $100 million advisory firm that aspires to grow is absolutely a target client for us now. And we know that there are a lot of advisors of all sizes in this current disruptive environment who are looking for a new home or contemplating what they’re going to do next.”

If there’s a takeaway here, it’s that Schwab and Fidelity are driven by the imperatives of the retail marketplace, while BNY Mellon/Pershing is more free to innovate, free from the constraints of trying to attract individual retail investors with free this and free that. “Instead of taking a retail chassis and orienting it towards an advisory practice,” says Harrison, “We’ve taken an institutional chassis that services multi-business line financial services companies and brought that to the RIA marketplace. Everything is designed for advisory firms.”

Pershing Service Capabilities

But what can “smaller” (e.g., $100 million to $250 million of AUM) advisors expect on the service side if they decide to move their assets to Pershing? Because it has, in the past, worked exclusively with larger (read: demanding) firms, Pershing has by necessity developed a dedicated service team approach to servicing advisor needs. The firm has also built out the largest—and some would say the best—business and tech consulting team in the custodial business. The goal has been to help growth-minded firms professionalize their internal management.

So will smaller advisory firms receive a different service experience from firms with Pershing’s traditional profile? And will advisory firms that choose one pricing model over another end up with a different service experience?

“Access to practice management and business consulting remains a core part of our value proposition for all the firms we work with,” says Harrison. He says that while the larger custodians are moving their smaller advisory relationships over to call centers, that will not be part of Pershing’s service model. “We know that for advisory firms, dedicated high-touch service is absolutely non-negotiable,” he says.

And the firm is continuing to take advice and suggestions from its advisors, not just on the new revenue models but also on other aspects of the business. “This pandemic that we’re all experiencing together is disruptive and in some ways unimaginable,” says Harrison. “But it has given us a lot of perspective on the core attributes of a custodial relationship. When things are choppy, when things really matter,” he adds, “you want to be a partner who has the strength and stability and resiliency and ability to serve your clients in tough times.”

Pershing As The “Alternative Transitional” RIA Custodian

What do advisors think about the Pershing model? Lyle Wolberg, Senior Financial Life Advisor at Telemus Financial Life Management (locations in Southfield and Ann Arbor, MI and Chicago, IL) says that his firm made the shift to Pershing from National Financial when it dropped its in-house broker-dealer in 2011 and moved to a fee-only revenue model. “We interviewed a bunch of custodians,” says Wolberg. “It was pretty clear that Pershing was the best choice for us.”

Why? Telemus is right in the sweet spot for Pershing’s original target market, with $3.3 billion under management and 1,200 household relationships. The firm was looking for growth opportunities and found Pershing’s practice management counseling especially helpful. “We liked Mark Tibergien, and his thought processes and ideas helped us focus on high-net-worth clients,” says Wolberg. “They came in and looked at our technology platform, and how we were using our staff, and our fee billing.”

The transition from dually-registered to fee-only was relatively smooth, but Pershing did help with a potential sticking point. “We create client portfolios with individual tax-exempt and taxable bonds,” says Wolberg. “Before we went fee-only, clients would pay a markup on every bond we purchased on their behalf, but we didn’t charge a fee. We moved from a markup to a fee,” he continues, “so it was the same yield.” In the initial negotiations, Telemus secured a commitment that Pershing would allow the company to shop its existing relationships and do bond trades away from the Pershing bond desk—something TD Ameritrade and Schwab were reluctant to allow. “We don’t make any money on those bond trades,” says Wolberg, “and we didn’t want the custodians taking a little bit out of the transactions either.”

Telemus also required a strong banking relationship. “The blending of the BNY platform with Pershing was important to us,” says Wolberg. “Our high-net-worth clients needed the investment credit lines and mortgage products that BNY offered.” “The banking and lending solutions allow us to compete with the JP Morgans of the world, in terms of matching rates,” adds Telemus CEO Matt Ran.

Finally, Telemus had been affiliated with UBS and Merrill Lynch in its earlier incarnations, and Pershing allowed the firm to track assets that were still managed at UBS.

Any drawbacks to the Pershing relationship? Ran is looking forward to the next upgrade of NetX360. “Pershing’s biggest shortcoming is their technology, in comparison with the other custodians,” he says. Telemus uses Orion as its client reporting platform, so the inconveniences are minimized; most of the portfolio management work is handled through Orion.

What about the service? Ran describes it as ‘incredible.’ “I have mostly calls with Pershing staff,” he says. “They’re not just calling me saying, hey, where’s the new assets? Whenever we run into those hiccups, or if there is an issue with something, we get a great response,” he adds. “I don’t know that we would get the same level of service at the other custodians.” Focus Financial is an investor in Telemus, and that allows Ran to compare notes with other Focus firms. “Talking with the firms that use Schwab,” he says, “they don’t seem to have the same feel about the relationship that we do.”

Strong Organic Growth RIAs At Pershing

GM Advisory Group, with $3 billion under management, would seem to also be in the Pershing sweet spot—but it wasn’t that way when the firm started the relationship. “We had maybe $150 million when we first approached Pershing in 2008,” says Frank Lavrigata, the firm’s Director of Portfolio Management. “We had fewer than ten employees then, which means we were one of their smallest clients at that point. I think they saw the opportunity with us.”

Before making the switch, the firm shopped around among the other large custodians, seeking a firm that would be most helpful to an ambitious organic growth plan. “The others were all pretty similar,” says Lavrigata, noting that Schwab and Fidelity’s retail operations seemed to come first in management’s eyes. “Pershing was unique,” he adds. “Keeping the money safe is pretty much all they do, and we liked the fact that our clients hadn’t heard of Pershing before we told them about them.”

But the deciding factor was customer service. “They will do anything they can to help us with our client situations, more than what we could see at the other major custodians,” Lavrigata explains. “We want to be able to pick up the phone and say, I need this now, and have them deliver on that.”

Adds Operations Manager Rosemary Santana: “A lot of it comes down to collaborating with them to further develop our practices and procedures. They focus on the way we want to serve our clients,” she says, “rather than on the paperwork and the hassle of getting documents together.” Santana adds that in the pandemic environment, the client onboarding process continued to work smoothly.

Lavrigata also likes the fact that Pershing can facilitate mobile check depositing, which, he says, Schwab declined to allow at the time. And in the initial decision, his firm also factored in the independence to be able to select investments without any competing incentives. “If you clear through Fidelity, you’re incentivized to use Fidelity mutual funds,” he says. “At Pershing, there is never any incentive to put one investment over another. They have given us the platform we needed so we could have an unbiased relationship.”

Shareholders Service Group (SSG): A Conflict-Free Relationship

Advisory firm relationships:  1,600+

$ under custody: (Not Disclosed)

Clearing platform: Pershing

Trading platform: NetX360

Platform rating in latest T3/Inside Information software survey: 8.57

Website: Shareholders Service Group (SSG)

Peter Mangan at Shareholders Service Group (SSG) in San Diego, CA, says jokingly that the announcement that Schwab was acquiring TD Ameritrade was “the biggest increase in our marketing budget (that we haven’t had to spend any money on) in years. It has generated more prospect calls than anything we could have done on the marketing end,” he says.

SSG was born during the TD Waterhouse acquisition of Ameritrade in 2005: Mangan and SSG Marketing Executive Vice President Barry Boyte were actually veterans of the Jack White (predecessor) organization and became key executives in the TDW advisor service platform before launching SSG. Dan Skiles serves as President, after having served as Schwab Advisor Services’ chief technology officer.

The calls have been coming because SSG has built a longstanding reputation for accepting and fully serving, without qualification, new advisors or advisors without high AUM levels—exactly the people who are most unnerved by the TDAI acquisition. “We’re hearing, I used to be at Schwab, and I left them, and I don’t want to go back,” says Skiles. “Or: I have assets with both firms, and that was by design, but now I need to have assets somewhere else. Or: They’re going to be huge now, and I’m very anxious about what ‘huge’ means to me and my [not-so-huge] firm.”

Mangan adds that some dual-custody advisors who had been working with TDAI have begun allocating all new money to SSG, just to hedge their bets.

SSG clears through BNY Mellon/Pershing, and can no longer be considered a small competitor, since it now supports 1,600 RIAs, using Pershing’s NetX360 platform. Trading fees are $4.95 per trade. Like BNY Mellon/Pershing, the firm makes a point of the fact that it doesn’t have a retail division. “Our advisors said, paying trading fees is better than going to zero if the effect is that we don’t compete with them,” says Mangan. “The response was: please don’t look like [Fidelity or Schwab]. Please don’t play the same revenue games.”

That basically means that the firm doesn’t have product-based incentives to recommend one fund or category of ETF over another. And SSG doesn’t generate its revenue from cash sweep accounts. “If our advisors decide to have any cash at all, they’re managing it,” says Skiles. “At other custodians, advisors have to trade out of the sweep accounts into money market products to get a little more yield. In addition to the time and effort, it also slows everything down,” he adds. “Suppose a client calls today and says, hey, I forgot to tell you, but the tuition is due for my son’s college education. I need to get $20,000 immediately to the university. If that money isn’t in the sweep, it’s going to take at least a day until it’s available to the client.”

When the merger was announced, Skiles conducted an informal survey and found that the difference between SSG’s FDIC-insured sweep and what was offered at TDAI and Schwab was more than 100 basis points.

Another selling point for SSG is the lack of advisor segmentation. “We’ve all read how Schwab advisors under $200 million are going to get a different service experience vs. firms above that, and firms over $1 billion get more,” says Skiles. “All those segmentation games are directly tied to revenue and profitability from the advisor. We don’t do that at SSG,” he adds. “If you call in here, we don’t route your call based on how much assets you have. You speak to an associate directly and immediately.”

Later, he said, “A lot of custodians are telling their clients they have to meet year-end deadlines if they want to get things done for their clients, like required minimum distributions, setting up new types of accounts that must be set up in 2019, etc., etc. We don’t tell them they have to get everything in by the 20th or whatever. When they send it in, we do it and get it done on time.”

Mangan adds: “We believe we can run our business on the theory that all of the advisors we support are important. This strategy has been very successful for us.”

SSG Service Capabilities: Taking Responsibility

Dave O’Brien, of EVO Advisors in Richmond and Irvington, VA, appreciates SSG’s meat-and-potatoes approach to service. “The NetX360 platform has a cool-looking iPad app, which is great,” he says, “but I don’t do that kind of work on my iPad. They have a nice desktop app for PC users, but I’m not using a PC.”

In fact, O’Brien and his staff don’t really interface with the trading platform, shared by BNY Mellon/Pershing and SSG, at all. “Orion uploads the trades to SSG for us, and that’s seamless,” he says.

So what keeps him loyal to SSG with so many competing platforms vying for his business? “I feel like they are an extension of my team,” says O’Brien. “They’ve gone through some good growth, and they have new people on their team,” he adds, “but the folks that we’ve worked with know us, know our business, and we always get the same responsiveness. Over there, somebody always takes responsibility with ownership. We don’t get that from the other custodian that we work with.” (He declined to name it.)

O’Brien likes the fact that he knows SSG’s company principals personally, purely due to the fact that his firm is a customer. “Our operations director can call Tim, their head of trading, and say We’ve got a negative trade date balance because that ETF trade that you put in the other morning got whipsawed and the price went way up, and now the client has a negative balance. Tell me what you want me to do. And,” says O’Brien, “they’ll fix it right there on the spot.”

He adds: “I have said this to so many people over the years: I trust them. You want a custodian where you know you can rely on them because, from the SEC’s perspective, they don’t care about the financial planning work that we do. They care about the trading. They care about the investment management. As the compliance officer at our firm, I know they have our back and I trust them.”

O’Brien adds that he relies on technology guidance from Skiles and his team. “They’re very good at negotiating discounts on technology,” he says. “The integrations we use are seamless: Orion, MoneyGuidePro, we are Wealthbox users, but we’re moving over to Salesforce. Talking with folks who work at other custodians, I’ve become convinced that the guidance and discounts are better where I am than where they are.”

SSG Partnership Relationship

As a former (18-year) manager and software developer for Hewlett Packard, Sunit Bhalla, at Oak Tree Financial Planning in Fort Collins, CO, is routinely asked to speak on conference technology panels. When asked to cite the advantages of working with SSG, he is quick to cite the expertise of Skiles. “When Dan Skiles arrived, that definitely upgraded their technology game,” he says. “They offer best-in-class technology at a discount.”

But his reasons for working with SSG are a bit more complicated. “I started my business in 2008 with no assets,” says Bhalla, who currently manages $40 million of client money. “I called around to TDAI, Fidelity, and Schwab, but none of them would take on somebody who was just starting out. Then I talked with the people at SSG and they said, come on over. I opened my first account in 2009 with them, and they were tremendously helpful and offered personal service. They never made me feel like I was a small customer. I remember calling SSG’s offices early on, and Peter, their CEO, answered the phone. That happened a few times.”

When asked about the current working relationship, Bhalla says: “There are three main things that I like about them. One is that they are great for me and my business,” he says, saying that the firm offered business advice and best-of-breed technology at a discount. “They will do anything they can to make me and my clients successful.”

“Second,” says Bhalla, “is that they’re great for my clients. That means quick service turnaround times. And three is that it is a partnership relationship. Even their top-level people will pitch in on the advisor work, and they know the advisors who the firm is servicing on a personal level.”

Of course, Bhalla watched the pricing evolution at the other custodians, and waited to see how SSG would react. “During the race to zero equity trades, SSG was very thoughtful about what they wanted to do,” he says. “They didn’t go down to zero in equity trades, but they did lower them to $4.95.”

Bhalla executes fund trades almost exclusively, paying $15 per transaction for most funds, $20 for Vanguard, Dodge & Cox and other lower-cost funds, and, he says, SSG is included in the $10 DFA trade arrangement.

He hasn’t seen a need to change the money market rates, because there was no need. “When I first started looking at the custodians, the Schwab, Fidelity, and TD sweep accounts for invested cash were paying extremely low rates,” says Bhalla. “SSG was reasonable from the start. But now they have the StoneCastle option, just like MaxMyInterest, where you can put in $2.5 million and they will find ten different banks to spread the money around, FDIC insured, with probably better rates than you can get from any brick-and-mortar bank, definitely much better than what Fidelity and Schwab are offering. And there’s also access to Vanguard money market funds,” he adds.

Bhalla concedes that all custodians have to make money. “SSG doesn’t make it on hidden fees, order flow routing or other ways that the other custodians make money on,” he says. “They’re very transparent about how they make their money. I think they’re treating my clients fairly, where they pay an amount that makes sense for the level of service.”

Anything else? “I don’t have any fear of them trying to steal my clients,” says Bhalla. “I’ve talked with other advisors who tell me that their custodian sent out an email about their retail services, about having the custodian manage their money. SSG doesn’t deal with retail investors.”

Are there any downsides? Bhalla says that his clients don’t recognize SSG from major advertising campaigns, so they sometimes ask if their money is safe—and he tells them about the size and stability of the Pershing custodial platform. In addition, he says, he has to run Windows in emulation on his Mac platform in order to run NetX360. “It’s not difficult,” he says. “I’ve heard that they’re working on a new version that is going to be all cloud-based,” Bhalla adds, “but it is not there yet. Having to run Windows to make trades is not ideal.”

Like O’Brien, Bhalla describes his relationship with SSG as a partnership. “I think of it as SSG is like a fee-only advisor,” he says. “Like us, the way they make money is transparent. They charge a reasonable amount and offer good service. I could not get the service they provide from other custodians,” he adds, “because I’m small. But here, I can call their offices and I might get the CEO or a VP of something, and always somebody who knows me and my firm. It is the ideal combination: We get the nimbleness and the personal service of SSG along with the stability and security of Pershing.”

TradePMR: Personalizing the (Technology) Platform

Advisory firm relationships:  400+

$ under custody: (Not Disclosed)

Clearing platform: First Clearing

Trading platform: Fusion

Platform rating in latest T3/Inside Information software survey: 7.40

Website: TradePMR

TradePMR is located in Gainesville, FL, and currently serves as the back office and custodial conduit for just over 400 hand-selected advisory firms whose assets are custodied at First Clearing Services (an extension of the Wells Fargo Clearing Services platform). Interestingly, the firm was born out of a similar acquisition event to the one making headlines today. When TD bought Waterhouse Securities, there were a lot of back-office snafus, including clients receiving client statements that previously had seven digits on them, and now were (alarmingly) listed as $0.

TradePMR CEO Robb Baldwin, who at that time ran a sizable RIA, decided to take matters into his own hands and create a back-office platform that he and some of his best friends in the business could rely on—because he owned and designed it himself.

“I wanted to provide a home for advisors who wanted white-glove service and a real relationship with their custodian,” says Baldwin. “And top-rated technology.”

The company offers a total turnkey package of software solutions integrated into its Fusion trading platform, which makes it ideal for breakaway brokers who are accustomed to an integrated in-house package of tools. But with the company’s open API, other advisors can link their own software suites through a variety of Fusion integrations. And a new account opening software add-on, called EarnWise, brings an online account opening feature that a certain much larger custodian has been promising for years.

When asked to define his firm’s “sweet spot” of ideal advisor relationships, Baldwin said: “We don’t look at them from the perspective of size or assets. In fact, one of the last pieces of information that we gather from them is their asset size. We want to know how they work with their clients, how they manage money, and their growth perspective and what it has been for the last five years. What stage of the business are they in? How many households do they serve?”

The model is to get to know advisory firms the way a financial planner will size up the prospect of working with new clients. Baldwin cites the example of the needs of a firm that services 1,000 households with an average account size of $50,000, versus a firm that primarily recommends DFA funds to its 25 households with $300 million under management. Different firms have different commission ticket charges, ranging from $0 to $9.95 on stocks; $0 to $14.95 on mutual funds.

Most importantly, Baldwin says that TradePMR is a true fiduciary platform that doesn’t offer its own products and is not biased toward recommending any products or services. And, responding to a question I asked all the custodians, the firm doesn’t require—as Schwab does and TDAI did—every advisor client to sweep cash into a single account, which pays percentage points below market rate. (The spread is a significant revenue source for Schwab Advisor Services.) “Our advisors have the option to choose any and all money fund alternatives,” says Baldwin. “We don’t block Vanguard or Fidelity money market funds from being available to our advisors, if they’re looking for a more permanent solution for cash management for their clients.”

Baldwin says the phones have been ringing since Schwab announced its proposed acquisition. “There’s a lot of uncertainty right now,” he says. “All we’re saying is: This is what we do, this is what we deliver, this is what we plan to continue to do. Depending on your needs, we might be a great solution for you.”

The expectation is that the usual inertia that makes it hard to attract new advisors (nobody wants to go through the hassle of changing custodians) will be much lower going into the new decade. This creates some potential opportunities for a smaller competitor that can still offer 22 years of track record.

“Many people had the choice, and they chose TD,” says Baldwin. “I think there is going to be a huge battle going forward for Schwab to assure everybody that they will continue to support these firms, whether it be below $200 million or even $500 million. That is still considered pretty small on their platform.”

TradePMR Lending Options

When he decided to leave Wells Fargo to go independent several years ago, David Hohimer of Hohimer Wealth Management in Seattle, WA spent 18 months evaluating not only the independent RIA custodians but also the independent broker-dealers in the marketplace. And he found that for one of his most important criteria, the options were surprisingly limited.

“We do a lot of lending,” Hohimer says, explaining that his clients, collectively, have taken out more than $100 million in loans for things like a new vacation home or home remodeling. His firm helps them use their portfolios to collateralize those loans and get an attractive interest rate.

But when he looked at the options, Hohimer found that many custodians are not set up to facilitate these securities-based loans the way he was accustomed to. “Schwab has a bank, but the rates were really expensive, and they wanted to circumvent you and try to get the client to sign off on some higher-priced lending,” he says. “Fidelity uses U.S. Bank and Goldman Sachs, and we had a problem with that. TD Ameritrade didn’t do that kind of lending.”

The selection process came down to BNY Mellon/Pershing and TradePMR, and Hohimer liked the service, technology, and access to key executives at TradePMR. “And their lending platform is second to none,” he says.

Hohimer is multi-custodial, but roughly $660 million of the firm’s $800 million in client assets is housed at TradePMR. Why does the firm still have assets at Schwab? The TD Ameritrade (now Schwab) relationship came about because Hohimer’s firm invests client assets in non-tradeable alternative investments, which TradePMR and First Clearing don’t hold on their platform. “So we broke out that part of our business to TD Ameritrade,” Hohimer explains. Similarly, Hohimer established a Schwab relationship when a large corporate client moved a $40 million qualified plan to Hohimer, with the stipulation that Schwab remain the custodian.

Doesn’t that make things a bit complicated? “A little bit,” Hohimer admits. “But Orion lets us roll all of those custodians into one single operating system.”

Where is the new money going? “TradePMR is our primary partner, and they’ve done a great job for us,” says Hohimer. “They’re always going to be our primary custodian.”

TradePMR: An Easy Transition

BLB&B Advisors, in Montgomeryville, PA, was founded in 1964 by two Air Force pilots from the Philadelphia area and has been an RIA since 1971. John Lawton, the company’s CEO, the son of one of the founders, says that his firm is multi-custodial (relationships with Fidelity, BNY Mellon/Pershing, and TradePMR), but many of the firm’s assets started at Wheat First’s clearing, and shifted due to Wheat’s acquisition by Wells Fargo to TradePMR, since TradePMR has become the Wells RIA interface to its First Clearing custodial platform.

“When we shut our broker-dealer down, moving to TradePMR was an easy transition for us,” says Lawton. TradePMR now holds a significant percentage of the firm’s $1.5 billion in AUM.

How would he describe the firm’s service and customer relationships? “TradePMR is very quick to move on things,” he says. “A firm with between $100 million and $400 million can get great personal service from them, where they might get lost in the shuffle at some of the larger custodians.”

As an example, Lawton says he can get TradePMR CEO Robb Baldwin on the phone whenever he needs to, and interacts regularly with managing director Rob Dilbone. “Yesterday, I said to Robb, can I catch up with you?” says Lawton. “He picked up his cell phone—and he didn’t know it was me until we talked. We talked for 15 minutes about some digital marketing stuff we’re doing.” After that conversation, TradePMR’s Chief Marketing Officer, Jessica Shores, jumped in to help design the digital marketing program at BLB&B.

Lawton also appreciates the advanced technology built into TradePMR’s Fusion workstation. “It does everything as far as servicing client accounts,” he says, “and with their new open APIs, you can bolt on best of breed software and configure it to how you want it.” His firm uses the Thompson SmartStation software that is available from the platform through Wells Fargo. “It’s really good for client proposals and rebalancing and managing the portfolios,” he says. Meanwhile, he cites the new EarnWise platform as a superior option for online account opening.

TradePMR Service Capabilities: Personal Family Feel

If BLB&B represents one of the larger firms with a TradePMR relationship, Bischoff Wealth Management Group in Greenwood, IN, staffed by CEO Brian Bischoff plus a full-time client associate and two part-time associates, is on the smaller end of the spectrum. The firm moved to TradePMR from Schwab when its assets totaled about $150 million.

“We were on the low side of Schwab’s RIA population,” says Bischoff. “I feel like I got lost in the shuffle, not being a multi-billion dollar RIA.”

Today, the firm has roughly $250 million AUM, right in the TradePMR sweet spot. “When we moved, I felt that we could be better served, and grow faster, if we were working with a firm that could give me more personal attention,” Bischoff says. “When I was looking at options, I was able to communicate directly with Robb Baldwin, and I told him what I wanted to accomplish and how we wanted everything to work in the clients’ best interests. There is no way,” he adds, “that I would have been able to talk directly with Schwab’s CEO, or have them make the adjustments I needed to fit my business model.”

When asked to describe the TradePMR relationship, Bischoff talks about the constant tech upgrades that let him leverage his small staff. “Their technology is second to none,” he says. “At Schwab or Wells Fargo or Merrill Lynch, the large institutions, it is hard for them to keep up with the best offerings, with their legacy systems. When I went from Wells Fargo to Schwab,” he adds, “I was really surprised that the technology wasn’t very different. Now, at TradePMR, they are nimble enough to really keep us working with first-class technology.”

Examples? “They just implemented a new performance reporting system through Black Diamond,” says Bischoff. “I don’t see how it could possibly be any better, whatever else is out there—and we get it at a fraction of the cost of what it would cost an RIA to implement it themselves.”

Second, Bischoff talks about a ‘personal family feel.’ “Knowing the people you’re dealing with on a daily basis,” he says, “and having direct communication with the people at the top when you need it, fits my clientele better than what we had before.” He and his team communicate service requests with the same five-person team on the trading desk and cashiering. “They know you, you know them, and if there are any issues, they can be resolved fairly quickly,” says Bischoff.

Bischoff Wealth Management has set a goal of reaching $1 billion in AUM within ten years, and Bischoff says that TradePMR’s marketing and service support have helped him nearly double in the past four years. “I don’t really see any issues as far as TradePMR being able to handle the kind of volume we’re planning to bring,” he says. “They give you the autonomy to be totally flexible and run your business in the best interests of the client. Robb and his management team,” he adds, “have done a phenomenal job of continuing to grow their services and the firm itself. I can see myself staying here for the rest of my career.”

SEI: Raising the Bar

Advisory firm relationships:  4,537

$ under custody: $80 billion

Clearing platform: Self

Trading platform: Wealth Platform

Platform rating in latest T3/Inside Information software survey: 7.03

Website: SEI Advisor Network

I suspect most advisors don’t know about the independent advisor platform offered by SEI, Inc., the advisory profession’s leading TAMP provider. But this is not SEI’s first venture into custodial work; what advisors plug into is essentially the same custody platform that is used by 11 of the top 20 U.S. banks to support their trust and asset management operations. The platform also runs SEI’s separate account offerings, which are used by 7,400 advisors who have $80 billion at the firm.

“In all, we’ve invested well over $1 billion in rewriting our entire company platform onto new technical architecture,” says SEI vice president Wayne Withrow. “Late last year, we completed the migration of our entire TAMP business onto that new custody technology,”

As Withrow tells it, towards the end of the migration process, the senior management team looked at each other and wondered if there was any good reason why they couldn’t offer the same banking and institutional platform, with the same capabilities, to independent advisory firms as their client custody platform. The capabilities make SEI a unique (if still niche) player in the RIA space; instead of a trading and asset management workspace, SEI provides something that the firm defines as a total wealth management platform—a set of integrated business solutions that also has trading and custody features.

What’s the difference? If you log onto the system, you discover features that are included in outside client portal systems, like a variety of performance measurement tools, total household allocations to different asset classes, and a variety of charts and graphs. You find built-in rebalancing and tax-loss harvesting features across households that can be automated (using time periods or tolerances individually selected for each asset class), similar to the independent rebalancing programs. (The system provides information and takes action at the individual tax lot level.)

Like many of the other platforms profiled here—but notably not at the larger custodians—SEI onboarding can be handled via e-signature. “We can onboard an advisor shop within 24 hours,” says Withrow. Of course, the ACATS transfer takes longer. Meanwhile, advisors on the platform are now starting to migrate from e-signing PDFs to a completely online account opening process. Withrow says there are a number of error-checking features in place to reduce NIGO returns.

Why build all those features that advisors can easily purchase on the outside? “In order to run a successful advice business,” says Erich Holland, SEI’s co-managing director of new business sales, “we think there are must-haves that shouldn’t be up for debate. These should all be standard, rather than add-ons.”

SEI RIA Custody Pricing Structure

To answer some obvious questions: people who use the independent SEI platform are free to use any investments they wish; they are not restricted to or required to use SEI’s separate accounts. (But those separate accounts are available.) Instead of transaction fees plus an expensive cash option, SEI assesses a bps-based platform fee, based on the type of business you’re doing—and the highest fees, Withrow says, are still in single-digit basis points. “It doesn’t vary widely based on what people want to do,” he says. (That platform fee covers all trading costs.)

So are there any downsides to this sparkling new custodial platform? One possible obstacle is that advisory firms will have to use model portfolios if they want to get the most out of the SEI platform; the technology is geared around models. Firms can have an unlimited number of these models, but for advisors who create bespoke portfolios for every client, they will have to either change their model or select another custodial option.

There are no size limitations for coming onto the platform, and each advisory firm has a dedicated service rep.

“The thing advisors are asking themselves,” says Withrow, “is: what do I need on the platform to support my business? I don’t want advisors to have to go out and say, well, how am I going to collect my fees? How am I going to rebalance my accounts? I have to send out statements; I have to do performance measurement. What do I use for that?”

“We do all of that; you just go out and service your clients,” Withrow adds. “We’re offering an unbundling of the foundational scale of our TAMP and banking businesses. For some advisory firms, that could be a pretty compelling proposition.”

SEI As A Business Partnership

What is the opinion of advisors who are using SEI’s new, upgraded platform? Scott Everhart, of Everhart Advisors in Dublin, OH, initially had no interest in adding a second custodial relationship. The firm has about $650 million on its wealth management side and manages 320 corporate retirement plans in the ERISA world. (In 2018, the firm was named by Plan Sponsor magazine as the Advisory Team of the Year in the mega team category.)

Everhart became aware of SEI when it was one of the few companies that could handle an isolated case involving a client who had invested in a captive insurance company. Somehow, during the conversation, a member of Everhart’s staff mentioned to an SEI counterpart his firm’s frustration with software integration with their current (not to be named) custodian.

“The software worked some of the time and not others,” says Everhart. “All we needed was for it to rebalance accounts with tax-efficiency for our taxable accounts. We discovered that SEI automates all of that. Their software has been very user-friendly,” he adds.

The firm started moving assets over to SEI on an experimental basis and liked the quality of the service so much that today, most new assets are going to SEI. Everhart describes the difference as a good business partnership (SEI) vs. a big-company vendor relationship (the other custodian). “When something gets off-track—and they always do, because nobody is perfect,” says Everhart, “I have a hard time moving up the chain at [my other custodian] to get to a decision-maker. At SEI,” he adds, “we can immediately get to people who can solve the problem.”

Meanwhile, Everhart says that his MoneyGuidePro software has a good integration with the SEI platform. “We are a planning-first firm, and they are doing everything we need to have done on the asset management side,” he says. “We were absolutely not looking for another custodian,” he adds, “but the crack was the software challenge, which got them in the door with us—and they have exceeded expectations ever since.”

SEI Service Capabilities: Spectacular Service

Another SEI user, Pollock Investment Advisors, falls somewhere in the middle of the pack in terms of size (150 clients, $250 million in assets). Its initial relationship with SEI was relatively small. “We started our firm in 2006,” says company co-founder (with his brother Jim) Rob Pollock. “Jim worked at a bank trust department, managing a small cap fund, and I was on the investment and equity committee of a fast-growing boutique firm,” he adds. “We decided that we wanted to be very selective with who we would take on as clients. There’s so much work that goes into onboarding a client and building a relationship, that we wanted to weed out problems down the road ahead of time.”

The young firm placed $20 million with SEI’s TAMP system. “That solved our smaller client and account problem,” says Pollock. “We could take on more business and not be burdened by it.”

Pollock was unusually experienced in custodial platforms, having custodied, in his career, with Paine Webber, First Michigan, and Pershing. So it caught his attention when the level of service with smaller accounts at SEI exceeded the service he was getting with his current (not to be named) custodian.

“Long before they opened up their new platform, we noticed that every account and every client we worked with at SEI, we were dealing with the same people whenever there was a problem,” Pollock says. “Their service was spectacular, and their continuity of personnel is off the charts. We never have to revisit a problem every time we call. Someone owns it, and they have a tracking system that is fantastic.”

Pollock asked SEI if it would be possible to transfer all of the company’s assets over, but not in TAMP accounts. “I told them, you guys are a nice TAMP, but the platform is the golden egg,” he says. “Your culture is what you should be selling, not your TAMP.”

SEI eventually used Pollock’s firm as a test case to grow the custodial platform, and with the rewrite and built-in capabilities, Pollock is now considering dropping Advent Axys and using SEI’s custodial features as the client performance reporting and rebalancing engine. “All the things we used to do in Axys, we can now go right to the portal and see what we need to see,” he says. “Axys costs us $20,000 a year,” adds Pollock. “That’s not a small expense for a $2 million (revenues) firm.”

Meanwhile, the company wanted to stop managing individual muni bonds and corporates. “We discovered that SEI has everything from independent managers to ladders, barbell strategies, whatever you need for one client or multiple clients,” says Pollock.

There is no requirement or pressure to move client assets from the independent platform into SEI’s separate accounts, but Pollock says that he does use one of SEI’s managed volatility funds in client portfolios.

What, exactly, is the difference between the old platform and the new one? “The legacy system was decent to look up holdings,” says Pollock. “It was decent to see activity, but there was very little online ability to effect transactions for ACHs and any other request. Everything was pretty much manual. Almost everything we do now is right online,” Pollock continues. “I will send an email to my ops manager and say, Bob Veres needs $20,000 ACHed. Boom, she goes online, fully automated.”

Is there anything missing? Pollock says that SEI is still working on accommodating private real estate deals (which Pollock Investment Advisors offers), and individual 401(k) client accounts are currently not included in the household rebalancing system. “I would say the only weak link of the platform would be the aggregation,” Pollock says. “You can do it, but it’s still not as seamless as it needs to be. They’re working on that as well.”

Integrations? Pollock says the link to the firm’s Advizr planning software (which was since acquired by and is now part of Orion Advisor Services) went from good to excellent, and he can make customized requests for any future software the firm brings in.

As an example of SEI’s responsiveness, Pollock points to the reporting function that can be used internally or in the client portal. “We’ve always done a manual report for every client, with beginning value, contributions, withdrawals, internal withdrawals from IRAs to a trust or taxable account, fees, everything,” says Pollock. “It would take us a month of staff time to get that completed.”

One day, the Pollock brothers showed SEI representatives what they were doing, and made a rather bold request.

“We said, is there any way this report could be built into the platform?” says Pollock. “If we had that data in real-time instead of once a year, we could know, from a marketing and sales and growth perspective, where the money was coming from, how much is net new, what we brought in gross and net.”

Working with Pollock’s ops manager and a younger advisor, SEI managed to program the report onto the platform. “It took them about a month,” says Pollock. “And it saves us a month’s worth of work every year.”

It will be interesting to hear from other advisors using SEI, but the ones I’ve encountered seem to be on the cusp of being raving fans. “SEI cares more,” says Pollock. “We tell our clients that WE care more, which I know is nebulous and intangible,” he adds. “But we know what it looks like, because we do, and they do.”

Altruist: Rethinking Custodial Functions

Advisory firm relationships:  NA

$ under custody: NA

Clearing platform: APEX Clearing

Trading platform: Altruist

Platform rating in latest T3/Inside Information software survey: NA

Website: Altruist

The brash newcomer alternative platform on this list is something called Altruist in Venice, CA. The firm is so new and growing so rapidly from a waiting list, that any report of assets or advisor relationships would be outmoded between the time of writing and the time of publishing. Nor does the firm, yet, have a score on the T3/Inside Information software survey.

Yet there is reason to believe the company is emerging as a strong competitor to the larger custodians, and worth including in any RIA firm’s custodial search process. Altruist’s founder is Jason Wenk, who has a track record of successes starting with the founding of the Retirement Wealth RIA, which currently employs 100 advisors and has nearly 15,000 clients—who paid $600 for their initial financial plan. Wenk followed that up with Formula Folios, a turnkey asset management platform (TAMP) which now has roughly $4 billion in assets serving 30,000 customers, and is morphing into a tech platform that automates client acquisition for advisory firms.

Altruist was born somewhat accidentally, after Wenk’s team of programmers developed fancy new onboarding technology for his firm to link with the custodians it was clearing through. The new software dispensed with paper and even the actual forms themselves, would auto-fill and integrate, and most importantly automatically check account opening and other electronic forms for Not-In-Good-Order (NIGO) problems.

“We had about 30 engineers on the project and built a really, really great user experience,” says Wenk. “But then, when we tried to tie it into the APIs at the custodians, it was not, to put it delicately, the most elegant solution.”

Meanwhile, the account servicing processes that Wenk’s various firms were receiving from its three custodians seemed to involve a lot of paperwork and too many back-and-forth conversations. Wenk stepped back and took a hard look at his other frustrations with traditional custodial service.

“I hated that you had to use those revenue-sharing ETF funds and revenue-sharing mutual funds to avoid commissions,” he says, referring to a previous era in the custodial marketplace. “There weren’t any truly good fractional share platforms. I thought: there has to be a better way. Why is it that I can go on my phone and open an account at Robinhood, and be buying and trading positions way more elegantly at a way lower cost than I can as a professional RIA managing millions of dollars?”

A related question intrigued him also: what software capabilities should rightly be custodial functions—rather than being handled by independent software from the outside?

“When you’re running a multi-billion dollar TAMP, it seems ridiculous that you’re dropping $150,000 a month on external software just to power your business,” says Wenk. “Even a firm with $50 million in client assets has to spend the equivalent of ten basis points on their assets, going out to software vendors. To me, that made no sense.”

This is a long buildup to Wenk’s new custodial platform called Altruist, which was initially released on March 4 of last year, when the firm started working through a waiting list of 700 advisory firms who were waiting their turn to get on the platform. Altruist offers custody through Apex Clearing. It intentionally offers a much more comprehensive custodial software suite than the other custodians, combining trading with an account-level rebalancing engine that rivals the commercial products tied directly into its asset database. There’s a client portal, plus the aforementioned seamless onboarding that is all handled electronically and largely automated.

If Altruist was developed with an eye to Wenk’s own pain points, it also incorporates a lot of input from the broader advisory profession. “When advisors applied to be included in our beta rollout last year,” says Wenk, “they would fill out a pretty detailed application, letting us know a lot of details about how they do business, where they custody, what type of securities they trade and—most importantly—where their biggest pain points are. That,” Wenk adds, “really helped inform the build of the product. People who were interested in doing something different were telling us exactly how their business functions today, and what things they were unhappy about.” In all, 1,600 RIA firms filled out the survey.

The biggest pain point? Altruist’s onboarding process makes you realize just how clunky and antiquated the traditional wet signature process has become. “When people are opening accounts, why doesn’t the process itself do a quick check whether that name matches that social security number, is the date of birth correct, and do the addresses match up?” Wenk asks, talking about features of Altruist’s onboarding software. “Why not do a quick ping on the USPS API to see if that’s a real legal mailing address?”

Advisors on the Altruist platform don’t actually send in paperwork; everything is in database format, including the documents and disclosures. There is a trading desk, and the fact that the company offers fractional shares means that advisors can create model portfolios and have them work for smaller and smaller clients. “If a client has $10,000 and they want to put $500 a month into their account, that is almost not even worth it at a place like TD or Schwab,” says Wenk. “For us, it is super-easy. Our cost of acquiring that client is basically zero; there is virtually no work involved. A lot of advisors,” Wenk continues, “are really excited about the idea of, hey, I can serve clients of all sizes, all wealth levels.”

Beyond that onboarding pain point, Wenk says that advisory firms were unhappy with the cost of having to integrate a lot of different systems. “That was something that came up over and over again,” he says. “Trying to run a lot of different systems is both clunky and expensive. They wanted more simplicity and lower costs.”

That input forced Wenk to rethink what features belong in the (free) custodial platform, vs. what should be left for outside firms to manage. This resulted in three departures from what you would get from the larger custodians. First, Altruist not only includes the usual trading and portfolio tracking features, but also functions that most advisory firms have to buy separately. “The first thing we built into the custodial package was a fully automated portfolio accounting system and reporting system,” Wenk explains. “And we added rebalancing capabilities that we’re still building out.”

The integration of client portfolio reporting and rebalancing directly with the custodial platform allowed a few additional features to be added. Perhaps the most important is the automated investing feature, where advisors can click a button that will allow clients to add assets to their portfolio, and Altruist—without any intervention by the advisory firm’s staff—will automatically allocate that contribution directly into his/her model portfolio, bringing it back to the initial allocation if there has been any drift.

“These are things that advisors should be able to do automatically,” says Wenk. “Traditionally, the money would come in and accrue in the cash account for a month before the firm would buy the ETFs it wanted, because there wasn’t a large enough dollar amount to buy them. But with our fractional share trading,” he says, “if somebody sets up a one-dollar-a-month automated contribution, the client sends the money into the account, and we’ve eliminated the operational paperwork or time commitment at the advisor staff level, and the drag of having the money sitting in cash.” The software will also allow clients to digitally connect their bank account to their investment account and automate contributions to their investment accounts directly; they would issue standing instructions to invest $25 or $100 a month.

The second departure is that Altruist’s custodial software—the reporting and rebalancing features—are portable. That is, they can be used with accounts held at other custodians.

“The software actually integrates with us, with Veo [while it’s still around], Fidelity, and Schwab,” Wenk explains. “If an advisor is multi-custodial and they happen to use us as one of the custodians, they’ll have all the software they need with the other platforms. They don’t have to pay for any external fee-billing software, performance reporting software—with us, all of this stuff is free.”

Finally, Altruist’s new custodial platform addressed the severe pain point of tracking the progress of the many requests and hands-on services that advisors require of their custodians: the check requests, trades, and everything else that clients expect them to keep track of. Wenk says that these features also add cost-effectiveness to the relationship: they enhance service to RIA firms without requiring them to interact with a lot of service teams. “When you go to Schwab and TD and Fidelity,” he says, “they’ll tell you that 40% of the calls that go into their service center are just a status checkup. Hey, I wanted to follow up on the paperwork that we sent in last week.

“We have real-time status on everything,” Wenk adds. “So there is not really ever a need to pick up the phone and say, hey, I’m following up on this status request. Everything is live and in real-time, and it’s easy to know what the status is.”

As the firm works through its waiting list, Altruist is becoming a significant competitor in the custodial face at lightning speed. Wenk says he has had to maintain a measured pace of adding five RIA firms a day to make sure that his team can answer questions about how to get started with the software. The technology and clearing relationship, he says, was built to be almost infinitely scalable, and people have their accounts up and running in minutes, which addresses another pain point in the existing marketplace. “If someone were to sign up with Schwab today, they would probably be looking at 30 to 60 days for the applications and the training and the onboarding, before they could have a rep code and open accounts,” says Wenk. “For us, we literally click a button, and it is less than 30 seconds for an advisor to be onboarded.”

“We could onboard a million users and it wouldn’t really make a difference,” Wenk adds. “But practically speaking, even with the most intuitive software, we didn’t want too many people coming in all at once, and then asking: Hey, how do I do this? What does this button do? And not have the capacity to support them.”

How long before the client assets transfer over? Here, too, Altruist is addressing pain points. “We recently did a full book of business from one of the bigger custodians in two days, a book-to-book transfer,” says Wenk. “Our technology to transfer an entire book of business is unique. My understanding is that no one else has ever done it like this before.”

Altruist Pricing Options For RIA Custody

Which brings us to pricing. What does all this technology and newfangled feature set cost?

“People are spending $40,000 a year on the kind of software that we’re giving away essentially for free,” says Wenk. “When you get Altruist, the first 100 accounts are free.” After that, he says, the cost is one dollar per account per month, any account size. “We have younger, newer advisors,” Wenk adds, “who have $10 million in AUM, less than $100,000 in total revenue, who are paying nothing to Altruist because they don’t have 100 accounts yet. That’s a huge win for a startup firm, to get $10,000 to $15,000 back into their bottom line.”

Altruist was built with advisory firms under $100 million in assets in mind, and its scale allows advisors to work with clients who would have been unprofitable using a traditional custodian. “It’s hard to effectively scale an advisor’s services to clients of all sizes and do it in a way that is helpful to a client,” says Wenk. “If somebody is dollar-cost-averaging $100 to their account, if you cannot set that up almost entirely automated, it is incredibly inefficient for the advisor. If you do the math, those less-wealthy clients are paying ten percent per year in flat fees, even on the robo platforms like Acorn or Stash. But with our system,” he adds, “it is a few clicks of a button, and the money is invested automatically, and they are never going to get a cash drag, so it is actually more efficient than robo solutions.”

Altruist, he says, is able to give people just starting out on their financial journey access to a human advisor plus the automated tools. “If you’re trying to figure out how to close the wealth gap, the best way to do that is to look at those who have the largest taps, and address their pain points.”

Interestingly, the under-$100 million advisor firm may not be Altruist’s only market. “The great irony is that a lot of larger firms are now beating down our doors,” says Wenk, “trying to get a chance to test out our software and get on our beta group.”

Suddenly, Wenk addresses me, not as the interviewer, but as the long-time industry observer. “You’ve been covering practice management and technology for a while,” he says. “It’s not like any of this is news. I’ve felt like these were the challenges that needed to be addressed for years. In the past, it was easy for the institutional platforms to be fat and happy. But in this environment, advisory firms need better pricing and true digitization.”

Altruist Scaled Service Capabilities

Matthew Fox, founder of Ithaca Wealth Management in Memphis, TN, opened up his planning shop last year after working as a portfolio manager for a much larger firm, specializing in SRI/ESG portfolios. The idea was to serve less wealthy clients better than the competition.

“There were a number of things that didn’t sit well with me at a traditional advisory firm,” he says. “First, the fees are pretty high, and the firms have minimums of $500,000 or $1 million. Being 29 years old myself, it felt like the people who need financial advice the most, the youngest people, are not being well-served by our profession.”

But before he could work with those younger, less-wealthy clients, Fox needed a custodial relationship—and that proved to be an unexpected challenge. “Because I’m just starting out,” says Fox, “I couldn’t work with TD Ameritrade or Schwab or Fidelity. I didn’t have that $20 million in client assets.” Then he saw mention of a company called Altruist on Twitter. “I reached out and immediately got on their waitlist,” Fox adds. “They opened it up in March of last year for me to join and formally start my firm.” Ithaca Wealth Management currently serves 19 client families.

Is this a situation where Fox will start out with Altruist, ramp up his AUM, and then move to one of the larger custodians? Probably not. “The more I work with Altruist, the more I like them,” says Fox. “They’re enabling me to be able to offer wealth management services that I can feel good about offering.”

Fox specializes in SRI/ESG screens on individual securities, and Altruist just happened to offer a big advantage to him as he builds his client base. “The fact that they have fractional share investing capabilities means that I can now open an account for someone who only has $20,000 to invest right now,” he says, “and I can put them in my model portfolio, with individual stocks, U.S. large cap blue chip names and ETFs in international and emerging markets, just as I can with a million-dollar account. It means I don’t have to turn a client away,” Fox adds. “I can get them invested in the same portfolio as I would a larger account size.”

Perhaps most importantly, the Altruist pricing structure lets Fox pass on the cost savings from what he would otherwise have had to pay for a portfolio management software suite. The current cost is zero because the first 100 accounts are free. “I don’t have to charge 1% of the portfolio or a high quarterly fee to turn a profit,” says Fox. “I can charge much less than the traditional advisory firms because of the cost savings of working with Altruist.”

Does this mean that Altruist doesn’t make any money on clients like Fox? “There are fees associated with mutual fund trades and wire services,” he says. “Their fee schedule is published online.”

What does he think of the Altruist software platform? “It’s pretty sensational,” says Fox. “Once I convert a prospect to open up an account, the account opening process takes no more than five minutes, completely digital, completely online. You can really open up an account in a matter of seconds, and then they work with Plaid, so you can connect with client bank accounts in seconds.”

Anything else? “The newest feature they have, which has blown me away, is that they have digital ACATS capabilities,” says Fox. “I have one client who just came on board who held their clients at Vanguard and Charles Schwab. At my prior firm,” he adds, “the process of initiating that transfer of outside assets into the firm would be, depending on the brokerage firm, very complicated, with pages of paperwork to fill out, send to the broker, and wait while they sat on it.”

The Altruist system not only automated this process but also sped it up. “The process to get my clients’ assets from Vanguard and Schwab,” says Fox, “was a matter of me clicking a button that says ‘initiate a digital ACATS,’ put in the Vanguard account number, click ‘Vanguard’ as to where the client’s assets are, put in the account number from his brokerage statement, and then I would click ‘full’ or ‘partial,’ and it’s done. Within a couple of days, the assets are in the account.”

Fox is making full use of the automatic investing and balancing system from client bank accounts. “I build out my model portfolios with the designated allocations to each security,” he says, “and then I have an option to set the drift tolerances. When the client deposits new funds into their account, it is automatically brought into the model that is assigned to the account. Set it and forget it.”

Does that save time? “Part of my previous job was actually trading whenever a client added funds to their account,” says Fox. “I would get a ticket from the advisor and personally go in and manually rebalance. I would be sending off and reviewing the trades.”

The Altruist software also generates performance statements. But at the time I talked with Fox, the feature was still too new for him to have tried it out. “I’ve seen that it creates a nice-looking PDF of performance, you can select whichever accounts you want to include and you can select the range,” he says. “Pretty soon, we’ll be able to add our own logo and cover page—which, if you have a PDF editor, you can do yourself.”

Finally, Fox likes the ‘ideas’ section of the platform, which is a forum where advisors can request features and comment on each other’s requests. “They’re responding in real-time,” he says, “saying: we’re going to put that on our feature roadmap, or: no, that’s out of our realm.”

Altruist Digital Onboarding

Justin Castelli, at RLS Wealth Management in Fishers, IN (north of Indianapolis), started his firm five years ago with the idea that he would provide a flat fee model relationship for younger professionals, supplemented by a traditional AUM model for retirees.

“I started with TD Ameritrade out of the gate,” says Castelli. “I’m a member of XY Planning Network, but I did not join XYPN until after I had already gotten on the TD platform.” The firm is currently working with 120 households with roughly $42 million in assets.

RLS still has assets at the larger custodian (now Schwab Advisor Services), but Castelli believes that the Altruist platform is superior for his younger clients. “The wealth management clients will probably stay at TD Ameritrade [now Schwab] for the time being,” he says. “Altruist is handling clients who are on the subscription model.”

How would he contrast the two? “The onboarding process with Altruist is a lot quicker, more seamless, all-digital with no paperwork,” says Castelli. “There is no DocuSign. We send clients a link and the account is established and the assets moved within a day or two. With TD, we would use DocuSign, and it takes longer to get clients set up.”

But there is a drawback—at least for now—in having the account opening documentation in a database format rather than documents. “The records come in a digital form that doesn’t look like a normal application,” says Castelli. “From a regulatory and compliance standpoint, Altruist is still building out the proper way to get the account documents into our record-keeping files.”

Side by side, Castelli prefers Altruist’s rebalancing engine to iRebal. “Altruist automates the daily rebalance for me,” he says. “It rebalances to your model portfolios for every client, which makes it perfect for my young professional clients. And,” he adds, “I don’t have to place the trades.”

The introduction of fractional shares allows smaller clients to use the same model portfolios, and Castelli says it is not uncommon for young professionals to move $500 a month from their checking accounts into their Roth IRAs, plus a few hundred dollars into their taxable accounts. “Even with $500, fractional shares are still beneficial,” he says.

Altruist has recently rolled out a client portal, which Castelli describes as ‘very minimal at this point,’ but, he says, “it gives everything that the client would need, and it looks really nice. I don’t direct my clients to the Schwab portal,” he adds.

What about customer service? “With TD Ameritrade,” says Castelli, “when I called the customer service line, I never knew who I was going to get. But I actually know the Altruist customer service people by name, and they know me. They ask me about my family. The personal service that is coming from Altruist right now would be hard for anybody to beat.”

Castelli says that advisors who affiliate with Altruist should settle in for an interesting ride. “They’re improving the platform all the time,” he says. The downside of what would seem to be an unalloyed positive feature is that sometimes the system goes down briefly while the changes are made. “If I log in and look at my client portfolios when they’re redoing their performance algorithms,” he says, “the money may not be there for an hour, and then you can see it again.” Castelli worries that if a client logged in at that particular hour, he would get a phone call. “But,” he adds, “the company has been very quick to fix its growing pains.”

Castelli is still below the 100 account threshold, so the software and access to the platform are free. Before long, he’ll be paying a dollar an account, which he describes as an incredible bargain. “I think Altruist is doing a great job,” Castelli says. “And it will keep getting better.”

Altruist 90-second Account Opening

DJ Windle, of Windle Wealth in Oklahoma City, OK, says he was actually the very first person to use the software interface as a beta tester. “Jason Wenk reached out to me,” says Windle. “He wanted different peoples’ advice on what they wanted to see in a platform.”

Windle has recently crossed the $100 million AUM threshold and has shifted from state to SEC registration. He’s multi-custodial, with his TD Ameritrade accounts recently rebranded to Schwab Advisor Services. So he uses Altruist software with the Altruist platform as his client reporting/rebalancing program on the larger platform. “We used Black Diamond for a while,” says Windle. “But they were charging me $25,000 a year. The biggest issue that Altruist is solving,” he adds, “is that even after you pick your custodian, there are dozens of other pieces of software that you have to purchase.”

Windle compares Altruist performance reporting and rebalancing to the all-in-one integrated platform he once enjoyed at Edward Jones. “I didn’t think there was anything like that outside of the brokerage world,” he says. “Before Altruist, I had even reached out to software developers to see if somebody could help me create one for myself.”

And Windle appreciates the account opening feature of Altruist. “When I go to open an account, it used to take me four days at TD,” he says. “I had to send the paperwork out to the client, they had to sign it and send it back, and then it might take TD three days to process it. And that is before we do the ACATS.”

With Altruist’s digital onboarding, he says, the account opening process takes literally 90 seconds. “And you can fund it all at the same time,” says Windle.

Windle is making full use of the automated trading and rebalancing features. “You go in and set your parameters for your model, attach that to your client, and it auto-rebalances daily,” he says. “Money comes in and flows right into the investment account, so there’s no cash drag.”

With fractional shares, Windle can use his models with younger, less wealthy clients. “At Schwab, you really have to invest differently for people with low account balances,” he says, “versus people who have half a million or more to invest. With automated fractional share trading, I can put the person with $100 in the same model as somebody with $100 million. And I don’t have to spend my time on little mundane things like rebalancing fund contributions once a month because it just auto-rebalances as the money comes in.”

Why doesn’t Windle put all his assets into Altruist? “We use margin, and they don’t have margin available yet,” he says. “And the billing still isn’t the way I would like it to be.”

Windle has 500 client accounts, which means he’s paying Altruist $400 a month for the software, most of it operating on the Schwab Advisor Services platform, some of it on Altruist. He thinks that the low-cost structure and automated features he gets on Altruist make it much easier for him to serve low-asset clients at a price point that makes sense for them. “This is a conversation I had with Jason not long ago,” he says; “just that $40 annual account fee at a larger custodian—that alone will keep some people from investing. If you have somebody with only $1,000 and you’re charging them 4% a year [at $40 per account] just to have their IRA assets on the platform, it makes it hard for them to grow their wealth.”

And the software changes the advisor’s cost structure as well. “Whether or not you use Altruist as your custodian, the software itself is impactful,” says Windle. “If all you did was use their software and aggregate everything from Fidelity and Schwab, to be able to have their performance reporting, billing, and automated trading, you get all those capabilities without having to spend a quarter of your budget on software, and it’s simpler and easier to use. And prettier.”

Now that his larger clients have been swept up in the TD Ameritrade acquisition, Windle is reassessing his custodial choices. “When you have big companies like Schwab, it is really hard for them to turn that technology ship around,” he says. “But when you have a new company that’s lean and mean and can start from scratch, they can create something that has a more modern set of features, in a shorter amount of time, for less money. I think,” Windle says, “these digital platforms are going to be the future of advisors.”