The choice of an advisory firm’s custodial affiliation is easily one of its most important business decisions. The advisory firm is the front end of the client relationship, but it entrusts client assets, and key aspects of their service, to a custodian that safeguards the money and provides the underlying platform. And given the logistical challenges of switching between custodians, inertia often leads firms to stick with the same custodian for years or decades, even when a better fit might exist.
Many firms have chosen to work with the largest players in the RIA custodial space, benefiting from their size and scale. But the impending merger of Schwab Advisor Services and TD Ameritrade Institutional will reduce the number of options available for RIAs and force firms currently on TD’s platform either to be subsumed into Schwab’s platform or to switch to an alternative custodian. And while RIAs that take no action might face the specter of being relocated to a custodial platform they didn’t choose, other firms might take a more active approach in considering whether a move to one of a growing number of custodial options might be in their best interest.
In this guest post, industry commentator Bob Veres explores the range of considerations for firms thinking about moving on from “Schwabitrade” or from their current custodian, offering profiles of seven alternative platforms and reviews from advisors currently using them.
As a starting point, advisory firms can evaluate custodians on several levels based on their specific needs, from the cultural fit to their technological capabilities to the customer service a firm can expect to receive by determining whether the platform has a tiered structure where the largest firms get the best levels of service. An additional consideration is whether the custodian has a retail presence, as those without one won’t be competing directly with advisors in the marketplace (and the custodian’s management will be focused on the needs of advisors on the platform rather than spending much of their time trying to bring in more retail business).
Another differentiator between custodial platforms is their pricing structures. While some of the largest platforms may (nominally) offer their service for ‘free’, they still need to bring in revenue somehow (often in the form of below-market-rate cash sweep accounts). Other custodians offer a range of fee options, from ticket charges to flat subscription fees. This optionality can give fee-conscious advisors (and their clients) the ability to choose what makes the most sense for them.
Ultimately, the key point is that a growing number of custodial platform options are available for advisory firms, and the range of unique service cultures, technological capabilities, and pricing structures offers firms the opportunity to find the one that best suits their (and their clients’) specific needs!
RIA Custodians Featured In This Article:
BNY Mellon/Pershing | Shareholders Service Group (SSG) | TradePMR |
SEI | Equity Advisor Solutions |Axos Advisor Services | Altruist
The choice of an advisory firm’s custodial affiliation is easily one of its most important business decisions. The advisory firm is the front end of the client relationship, but it is entrusting client assets, and key aspects of their service, to the company that safeguards the money and provides the underlying platform.
Why bring this up now? Because an estimated 7,000 RIA firms have between now and Labor Day 2023 to decide whether they and their clients would benefit if they allowed their custodial relationship to be purchased, or if it makes business sense to seek a new relationship on their own. In just over a year (the timeline has finally been set), the former TD Ameritrade Institutional will be absorbed into Schwab Advisor Services.
In just over a year, those advisory firms – and all their clients – will be relocated from Veo One to a newly-revamped Schwab custodial platform, and become affiliated with a custodian that they did not choose to affiliate with initially.
Ironically, many of them originally chose TD over Schwab in the first place because of cultural issues; others because they were deemed ‘too small’ to be accepted by Schwab in their early stages; still others because they preferred TD’s open custodial software platform to Schwab’s more narrowly-focused one.
Meanwhile, a number of larger advisory firms that embraced a dual-custodial approach are going to find themselves moving back to a single custodian.
In many ways, this is a negative consent decision; that is, advisors are informed of the transition, and if they do nothing, then they will be part of the transition. The physics of inertia suggests that most TDAI-affiliated advisory firms will go along and keep their business with Schwab as the acquiring custodian.
Others are waiting to evaluate their post-consolidation service experience before considering a change. “My little firm is going to be swept into that TDA-Schwab transition next year,” one advisor told me, speaking for many. “Frankly, if it wasn’t such a hassle moving hundreds of clients, cost basis, performance data, I would strongly be considering going elsewhere. TDA’s service has been awful in the last 2 years, and if Schwab treats us like a second class advisor since we are under $100 million, we will be seeking a home elsewhere in 2024 or 2025.”
An unknown number of firms, meanwhile, are planning to be proactive about their custody arrangements and are exploring the alternatives.
This article was written for those advisors who are considering a switch. It offers a bit of due diligence on the custodial alternatives they might want to consider. Some readers are likely to be surprised at how much competition is out there, and how popular those competitors are with the advisory firms that are using them.
The interesting truth is that there is no shortage of attractive options for advisors who are looking for a new – or better (at least for them) – custodial relationship. And every firm that decides to shift to one of the alternatives makes the marketplace that much more competitive.
Beyond Schwab itself, and #2 RIA custodian Fidelity, the alternatives range from Pershing Advisor Solutions, which was, even before the merger, the second-largest independent custodial option when measured by its combined RIA and broker-dealer assets for which they provide custody and clearing services, to newcomer Altruist, which (by virtue of its newness) offers the most tech-advanced software platform. There are long-established firms like Shareholders Service Group (SSG) and TradePMR. There is a newer platform created by the SEI organization, and two rejuvenated alternatives: Equity Advisor Solutions (many of whose executives worked at the former Fiserv platform) and Axos Advisor Services, which was purchased by an online banking entity from Morgan Stanley, and was once known as E*TRADE Advisor Services.
In the minds of many observers, the ‘Schwabitrade’ merger that seemed to diminish competition in the RIA custodial space might end up increasing it, by ultimately driving more interest in smaller, more personal custodial platforms, whose scale could rise dramatically in the next year or two.
As you read this article, I invite you to browse through the profiles of alternative RIA custodial platforms, looking for a cultural fit, more advanced technology, or a platform that will give a firm of your size the same service levels that the profession’s largest custodian often only reserves for its largest RIA relationships.
Which firms qualified for inclusion, besides the Big 2 that RIAs already know about (Schwab and Fidelity)? The most obvious differentiator is firms that don’t have any retail presence – another way of saying that they don’t compete directly with advisors in the marketplace.
Advisors who custody with any of these custodians don’t have to worry that the firm is closely studying RIA service and pricing models in order to create a more compelling offer for their own retail clients. Or that decisions are made at the Home Office based on what the executive team thinks will bring in more retail business, and advisors become a bit of an afterthought because they represent a smaller part of the revenue stream.
Each firm included in this report also offers a contrast to the Schwabitrade/Fidelity policy of providing ‘tiered service’ that is highly personal for the largest firms and scales down from there to a phone center for the smallest advisors. The service ‘discrimination’ (is there a better word for it?) at the larger custodians is now out in the open, and while large firms may be happy with it (they are able to negotiate the strongest arrangements for themselves, given their size and assets), and some small-to-mid-sized firms may accept it as a trade-off (in order to access Schwabitrade’s or Fidelity’s platform and resources), as advisory firms increasingly ask more pointed questions, service levels – especially amongst small-to-mid-sized firms – is increasingly becoming a competitive issue. One where many of the alternative RIA custodians highlighted here are explicitly aiming to differentiate themselves with a better offering (which, ironically, was also how TD Ameritrade’s Institutional platform grew and drew market share away from Schwab and Fidelity over the preceding 15 years before it was acquired, too).
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: 7.05
Website: BNY Mellon/Pershing
Some readers might question Pershing’s inclusion in this report; when you think of ‘alternatives,’ the image that comes to mind is a niche player, and Pershing is one of the three largest custodians in the RIA space by a variety of measures. A different division is the leading custodian in the independent broker-dealer space.
But if an ‘alternative’ is a custodian that offers a different model from the Schwabitrade and Fidelity platforms, then Pershing sits comfortably on this list. Like the others, the company doesn’t have a retail division; nor does it offer tiered service which favors larger RIAs over smaller ones.
Pershing is also different in that it markets to a particular ‘niche,’ albeit a broad one: SEC-registered firms ($100 million AUM and above) that are professionally managed and committed to growth. The RIA custodial division’s average advisor relationship has more than $1 billion in AUM, but not a few of those firms started out in the $200 million range, and took full advantage of the practice management/business consulting services that the firm offers its advisors.
These consulting services are a differentiator. Most custodians offer some form of practice management advice, but during the time when Mark Tibergien was running what was then called Pershing Advisor Solutions, the firm took this service up a few notches. After a recent reorganization, Pershing’s consulting offer now includes seven distinct disciplines, each with its own team whose members will sit with advisory firms to oversee and facilitate implementation. The list includes business consulting and practice management (the latter working through broker-dealers); technology consulting (auditing a firm’s tech stack and making recommendations); operations and back office consulting; a team of implementers who will help RIA firms develop internal APIs and remote signature technology; enterprise solutions for larger firms that want to provide customized client services; and what might be called technology advocacy, which becomes a relationship manager of technology relationships between Pershing, the 500 tech firms that plug into its ecosystem, and advisory firms who might be requesting features or more responsive service.
Pershing RIA Custody Pricing Options
As most advisors now know, the sudden surprise introduction of a zero-commission pricing model for stock and ETF trades some years back was driven primarily by competition in the retail space. Schwab’s zero commissions announcement was a bold gambit to attract more do-it-yourself investors, and the other discount brokers – including Fidelity and TD Ameritrade – were forced to match the offer. To preclude rebellion, advisors on their platforms were given the same pricing structure.
Because it doesn’t have a retail presence driving its decisions, Pershing had the luxury of listening to its advisors before responding, and incorporated their input into choices for how to compensate the custodian for the services it provides.
“For some time before this, we had felt that the pricing model in the custodial landscape has been ripe for disruption,” explains Ben Harrison, the company’s Managing Director and Head of Advisor Solutions. “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.”
Option one is for the advisory firm to continue to pay trading costs as they had been before the zero-commission announcement. Alternatively, advisors could opt for the same deal a firm would get from Schwab and Fidelity: free trades, but Pershing will make money on the cash accounts.
Under option three, advisors could opt to pay a flat subscription fee for all their custodial services and access to the custodial technology. The fee will range from $25 to a cap of $75 a month per client account, depending on the size of the client accounts. Any monies that a client has invested in the BNY Mellon ETFs are excluded from the portfolio size calculation.
The standard custodial revenue model 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 most of its larger competitors do (though, it should be pointed out, not Shareholders Service Group, TradePMR, or Altruist).
Under each arrangement, the firms custodying with Pershing will receive a dedicated service representative and team, and will receive full access to the consulting services. For RIAs that want to make a switch and still work with a larger entity, Pershing is an obvious solution. For $100 million+ AUM firms with an ambition to grow, the consulting services represent an attractive option.
Pershing’s Recent Custodial Tech Upgrades
The question about Pershing’s custodial platform has always been its NetX360 technology, which is shared across its BD and RIA platforms. Because it was developed primarily for the BD world, the tech didn’t have to offer a lot of front-end conveniences; the broker-dealers historically would put their own front-end on the software for their reps. When Pershing committed to the independent RIA space, the software’s feature set became an obstacle, because most RIAs don’t have the capabilities to build their own technology front-end; anecdotally, you hear a lot of ‘the service is good but the tech platform is not up to the competition’ kind of remarks. The platform offered all the features of the competing technology, but navigating through all those options was confusing.
However, Pershing recently unveiled a modernized front-end to the software; the NetX360+ became available to users in July.
The differences are too numerous to mention, but they include a customizable dashboard that can display different data and windows (the firm calls them ‘blocks’) for people who play different roles in the firm. The management team might boot up NetX360+ and see a variety of business analytics, including total AUM and changes over the past 12 months (time periods can be adjusted) for inflows and outflows. Another ‘block’ will show client-related activities in progress.
Meanwhile, somebody working in the back office will see ‘items for attention,’ which can be thought of as a CRM for custodial issues. Which of the firm’s clients have service opportunities like a distribution coming up, not enough funds in the account to meet an upcoming check request or to cover the next advisory fee billing, or have a portfolio position that is missing the cost basis. An advisor might see a list of clients and issues relating to their accounts, including a ranked order of which of them are clicking into their private account platform, and how often – potentially a way to tell which clients are getting nervous about the markets.
The portfolio management team would see a screen with constantly updated market news and tracking of the performance of the model portfolios. In each case, the user can click to get more details: details on a particular portfolio position that has declined recently, or a client’s various accounts, etc.
The result is that the front end of the custodial platform has been tamed and customized to different users. Initially, the tech support team at Pershing will handle these dashboard customizations, and RIA users can then refine them as needed. Behind the scenes, a machine-learning process will evaluate which features are being accessed most frequently by different users, and suggest streamlined refinements to the dashboard and menu structure.
Before long, advisors will have another way to interface with Pershing. While some outsourced investment solutions are moving aggressively into the custodial space (SEI being the best example, see below), Pershing is creating its own investment platform. The initiative, called Pershing X, will leverage the in-house Albridge platform as a multi-custodial portfolio management/reporting solution that becomes the hub for advisors who want to use Pershing-managed accounts (formerly Lockwood) for their clients, take advantage of an in-house index replication solution, or pull in the full marketplace of separately managed accounts. The platform will also offer lending and banking solutions through the parent company, and a way to parse through and access insurance products in the marketplace.
This ‘every-product-solution-under-one-roof’ marketplace approach will be familiar to Envestnet users. Pershing X is aiming to become the second comprehensive product marketplace platform in the advisor space.
Pershing Advisor Solutions Reviews From Advisors
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 [former Pershing Advisor Solutions CEO] 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? “I have mostly calls with Pershing staff,” says Ran. “Whenever we run into 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.”
Pershing Support For Organic Growth
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 the firm that would be most helpful to an ambitious organic growth plan. “The other major competitors 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 it.”
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: 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: 8.77
Website: Shareholders Service Group
Peter Mangan, co-founder and CEO of Shareholders Service Group (SSG) in San Diego, CA, used to say, 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 generated more prospect calls than anything we could have done on the marketing end,” he says.
SSG was born shortly after the TD Waterhouse (TDW) acquisition of Ameritrade in 2005. Mangan and SSG Marketing Executive Vice President Barry Boyte were veterans of the Jack White (predecessor) organization, and became key executives in the TDW advisor service platform before launching SSG. The firm has positioned itself as the most service-focused and reliable platform on the market – although in recent years, technology support has emerged as a huge part of the service package today. Dan Skiles serves as SSG President, after having served as Schwab Advisor Services’ chief technology officer. As a thought leader, he wrote the technology column in Investment Advisor for a number of years.
SSG Flexibility For Smaller And New RIAs
A big part of SSG’s growth has come from smaller firms just starting out. The firm has a longstanding reputation for accepting and fully serving, without qualification, brand new advisors with zero AUM, as well as a broader range of advisors without high AUM levels. “My experience has been that people don’t start an advisory firm without a plan to bring on new clients,” says Mangan.
SSG is also well-positioned to work with larger advisory firms looking for that second custodial relationship – 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, in part to hedge their bets, in part to improve the quality of service. The lack of a retail division, and especially of direct competition with advisors, is another plus. Mangan has famously promised to SSG-affiliated advisors that if they promise not to become institutional custodians and compete with him, then SSG will promise not to become an advisory firm and compete with its advisors.
SSG Service Team Structure For RIAs
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 new NetX360+ platform. Trading fees are $4.95 per trade.
Like the other custodial options in this article, 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. “With the Fed raising interest rates, one of our FDIC cash sweep options is yielding 50 basis points higher than our custodial competitors,” says Mangan. “And it offers FDIC insurance up to $2.5 million, vs. $250,000 at other custodians.”
“If our advisors decide to have any cash at all, they’re managing it,” adds 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.”
Another selling point for SSG is the lack of advisor segmentation; the firm gives everybody access to the same experienced service people. “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.”
“We continue to add staff and have also benefited by retaining our long-time team members,” adds Mangan. “Average experience across the firm in serving RIAs is 19+ years, which is another big reason why we still have zero hold times.”
The SSG same-day service promise looks attractive compared with the long wait times and even longer fulfillment times at Schwabitrade. “A lot of custodians are telling their clients they have to meet year-end deadlines [far in advance of December 31st] 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 2022, 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 RIA Custodian Pricing For Fiduciaries
William Cuthbertson, founder and CEO of Fiscalis Advisory in Mission Viejo, CA, was custodying at TD Ameritrade Institutional when news of Schwab’s purchase broke over the news wires. Before starting his firm, Cuthbertson had previously worked with a firm that custodied at Schwab, and deliberately chose TD Ameritrade at the time for what he considered to be the most viable alternative, and what some at the time had called ‘the anti-Schwab,’ supportive of the profession and focused on client service.
“Schwab is a very different culture,” he says. “I felt like TD had their hearts in the right place, and I was worried that that attitude was about to disappear. I was worried that my custodian’s approach to business would change in ways that I wouldn’t be pleased with,” he adds. “I didn’t expect the service to improve as the merger created such a huge firm, and I didn’t think that Schwab was after businesses like mine [$43 million AUM] when they made the purchase.”
But Cuthbertson says that his decision to rethink his custodial relationship began and ended with looking at the situation from the standpoint of his clients. If he was going to make a switch to avoid being swept up in the merger, what would be the best option, not for him, but for his clients?
“I looked at how Schwab makes money, and TD makes money,” he says, including below-market cash options, payment for order flow, and other largely-undisclosed revenue sources that can drain client accounts. “When I did my due diligence, the question always was: how would this impact my clients in terms of the fees they pay?” Cuthbertson adds. “And of course I wanted to get better service as well, which allows me to be more responsive to my clients.”
The search led him to Shareholders Service Group – which, he says, is even more of the things that he was looking for when he originally selected TD as his custodian. “Everything I checked out meant that my clients would be paying less and getting better service with SSG,” he says. “Even after paying the trading fees, SSG was better for my clients.”
Cuthbertson acted relatively quickly, starting the transition from TD to SSG in early 2020 – only to discover that the complicated repapering process was going to be further hindered by a global pandemic that prevented the SSG team from coming to his offices.
“They were going to come in and set up client meetings and handle all the paperwork,” Cuthbertson says. “They ended up helping me do it all digitally. They prepared the paperwork based on the information I gave them, and were a real partner in helping us get things done.”
Both sides took their time, so the process took nine months. “I let it drag out; that is not on them,” Cuthbertson admits. “I would get to it whenever I had the free time to work on the transfers.”
How would he compare his service experience at SSG compared with TD? “TD was willing to fix things when problems arose,” says Cuthbertson. “I wasn’t unhappy with their service. But like most large firms, the service people who were really good would get snagged by the organization to move up, and then we would have a new class of people answering the phones. You would find yourself in the role of being part of the training for those new folks, because you’ve handled it multiple times, and the new person on the phone hasn’t been in these situations before.”
He added that sometimes his paperwork would be flagged by the TD service team as not in good order, and when he asked why, the person he was talking to was not the person who had flagged it. “There wasn’t continuity and conveyance of information – the kind of communications problems you get into when you’re working with a large organization,” Cuthbertson says.
And at SSG? “Their service experience is 180 degrees different,” says Cuthbertson. “They’re competent, professional, and prompt. When you have an issue, they resolve it on the spot.”
This, he says, is true even when the service request is out of the ordinary. “I was going through a standard regulatory review with the state of California,” Cuthbertson says, “and they had some questions about my trading authority and whether or not I should be considered a discretionary advisor with some of my clients. I needed to get some clarification. There is no way I could have gotten that clarification from TD,” he adds. “I had it in 48 hours from SSG.”
In another case, a client was buying a house, and the process happened much more quickly than Cuthbertson had anticipated. “I was expecting to have a few days notice to get the down payment wired over,” he says, “and instead I had a few hours notice. So I called SSG, and they made it happen right then and there. Normally something like that would take a day,” Cuthbertson adds, “but because this was a special circumstance, they took care of it immediately.”
When talking with advisory firms that work with SSG, you often hear stories about how the company principals would field calls and follow through on service requests. Cuthbertson relates the time when an outsource provider he was working with had their database breached. “It got me to wondering, what kind of security steps should I take to protect myself in those cases?” he says. “Should I request all my client account numbers to be changed?”
He called SSG for guidance on how that might work. “The first person I spoke with, I said, who can I talk to who would tell me what would be required to make this happen if I came to that conclusion?” says Cuthbertson. “That person said, I think you need to talk to [SSG president] Dan Skiles. He would know the most about that. Can I have him call you back?”
The result? “Dan called me back an hour later and we had a conversation about it,” Cuthbertson recalls. “He helped me better understand the situation I was dealing with regarding the service provider and client security and protecting client information. At Schwab, I would never get that kind of attention. That person, that level, would never talk to someone like me, and the same at TD. That’s not a criticism; it’s an observation,” he is quick to add. “They just can’t function that nimbly.”
Cuthbertson admits that even with the transition team helping out, it takes a lot of time and energy to get all the paperwork taken care of for client accounts to move over. He believes that this large inconvenience is creating a dilemma that many advisory firms are facing now.
“I could have stayed where I was and avoided all the work of transferring accounts and assets, and my clients would have been completely unaware that there was a better solution for them and their finances,” he says. “It is what you do in private,” Cuthbertson adds, “that really determines whether you’re a fiduciary. It’s a question that a lot of us face from time to time: am I willing to do some extra work in order to live up to my fiduciary responsibilities? Speaking just for myself, I felt like I couldn’t NOT do it. And,” he says, “it turned out to be a great choice. I’m glad I did it.”
SSG Service Reviews From Advisors
Dave O’Brien, of EVO Advisors in Richmond and Irvington, VA, appreciates SSG’s meat-and-potatoes approach to service. “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. Somebody always takes responsibility, with ownership. We don’t get that from the other custodian that we work with.” (He declines to name it.)
O’Brien likes the fact that he knows SSG’s company principals personally. “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 backs 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, 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.”
Similarly, as a former (18-year) manager and software developer for Hewlett Packard, Sunit Bhalla, at OakTree Financial Planning in Fort Collins, CO, is routinely asked to speak on conference technology panels, and when asked to describe 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 $50 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,” he adds. “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: 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 a 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 prefers the cash alternatives to what the larger competitors are offering. “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. 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.”
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 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: 8.93
TradePMR, located in Gainesville, FL, was born out of another mega-custodial purchase two and a half decades ago, similar to the one that is currently making headlines. When TD bought Waterhouse Securities and integrated the accounts held at Jack White & Co., the consolidation was plagued by a lot of back-office snafus, including clients receiving account statements that previously had seven digits on them, and now were (alarmingly) listed as $0.
The constant back-office problems incensed TradePMR CEO Robb Baldwin, who at the time ran a sizable RIA. “There were about 25 advisors who literally woke up one morning and they had zero accounts under management, and their client account statements were zero, and nobody knew what happened to the money,” he says, noting with wry understatement that the ‘lost’ assets and zero balances on the account statements created some interesting client communication challenges.
“I had a real black eye with my clients and my community,” Baldwin adds, “because, as they pointed out, they didn’t pick the custodian that was creating all these problems; I did. They looked to me for answers, and didn’t like the fact that I didn’t have any. It took us 90 days to find the assets and be able to assure clients that their money was back in their account – and in the process we lost all basis, all transaction history. We had to keep paper statements to be able to go back and give clients the information they needed on their tax forms.”
Rather than complain, Baldwin 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. He could rely on it because he owned and designed it himself.
And once he was building his own custodial platform, why not improve on the model?
“I wanted to provide a home for advisors who wanted white glove service and a real relationship with their custodian,” says Baldwin. “And I wanted it to offer top-rated technology.”
TradePMR Digital Experience
Today, TradePMR offers a total turn-key package of software solutions integrated into its internally-built Fusion trading/client reporting platform. Having trading, rebalancing, and reporting built directly into the custody technology makes it ideal for firms that are looking for a seamless tech experience. TradePMR has also been popular with breakaway brokers who are accustomed to being provided with an integrated in-house package of tools.
The other advantage of creating its own technology is that TradePMR is able to deliver customized technology solutions at the request of the larger advisory firms – at a time when those firms increasingly want to build and brand their own unique client experience. In a presentation at the 2022 T3 Advisor Technology conference in Denton, TX, one of the advisors in an advisor tech panel discussion noted that his firm had gone to its other custodial relationships – Schwab, TD, and Pershing – asking for their help creating a customized piece of its service model – and for some reason, he could never quite get an answer.
When he called TradePMR, the answer was more welcoming: Show us what you want and we’ll see if we can do it. The solution turned out to be doable after all. Beyond that, with TradePMR’s open API, advisory firms with in-house development teams can build their own data links through a variety of Fusion integrations. This also delivers the former TD Ameritrade experience for software vendors; instead of requiring the custodian to build their integrations, they can do it through the API suite.
TradePMR was perhaps the first custodian on the market to offer a digital account opening experience, which has since evolved into a simplified data-gathering process that automatically maps client information to the required forms and documents. “We’ve built out a great team of transition specialists who help pre-plan the conversion in advance,” says Baldwin, “where the advice firm can load up all their clients inside of Fusion, run their current system in parallel as they gather the digital signatures, and then they can open the accounts one at a time or wait until the end of the month and push the button, and all the ACATs go through, all the accounts are opened, and everything moves over right then and there.”
The key point that Baldwin is especially sensitive to, given the origin story of his firm, is that every detail can be checked once or twice in advance before the switch – so that clients aren’t receiving confusing account statements and making angry calls to their advisor. But he says that a lot of the actual work these days isn’t in transferring money; it’s in making sure all the various software wires between the advisory firm’s tech stack and the custodial platform are connected and integrated with each other.
“Advisor technology has become so complex these days,” says Baldwin, “that you have to really dig in and make sure everything works at the new custodian the same way it did at the old one.” Referring to the proposed Labor Day weekend changeover from Veo One to the still-under-construction new Schwab custodial platform, he adds: “It’s not something that you want to do over a weekend.”
Baldwin says the phones in his offices started ringing as soon as Schwab announced its proposed acquisition – and they haven’t stopped. “There’s a lot of uncertainty right now,” he says. The roughly 130 recent RFPs (Requests For Proposal), he says, are asking about technology and the connectivity points, the pricing, and the ever-elusive cultural ‘fit’ where the RIA’s values and goals align with their custodian’s (Proprietary investments? A division that competes with advisors in the retail space? Fully transparent pricing?).
But beyond that, the inquiries all seem to center around one common denominator.
“Every single phone call that we get, they ask: can we speak to any number of your advisors?” says Baldwin. “We want to hear from them about service. That is their number one concern at this point in time.”
TradePMR Custodian Pricing And Typical Advisory Firm
When asked to define his firm’s “sweet spot” of ideal advisor relationships, Baldwin says: “We don’t look at them from the perspective of size or assets. In fact,” he adds, “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 point is to get to know if there’s a fit with the advisory firms the same way a financial planner will size up new potential clients. This also determines the negotiated pricing model, which could involve zero trading commissions, or monthly fees.
“We’re doing it every which way these days,” says Baldwin, “from ticket charges [currently $6.95 on stocks and ETFs, $14.95 on mutual funds] to asset-based pricing, to some advisors paying us a fixed dollar amount per year, broken out quarterly.” Regardless, the firm doesn’t require – as Schwab does and TDAI has traditionally – that every advisor’s client sweeps cash into a single account, which pays below-market rates. “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.”
“Advisors who go through the RFP process are seeing us the way TD positioned itself 25 years ago,” says Baldwin. “We’re small, we’re nimble, we’re quick, we are very tech-friendly with lots of integrations, we provide great service and access to the firm’s leaders if something needs to be done,” he adds. “That’s the old TD model, and it’s what everybody wanted. TD provided that culture, those systems, that atmosphere, and it worked well for them. The same formula has been working well for us.”
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 in order to get an attractive interest rate.
But when he looked at the options, Hohimer found that many custodians were not set up to facilitate these securities-based loans the way he had been 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, the technology, and the 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 TDAI? 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 Transition Support
BLB&B Advisors, in Montgomeryville, PA, was founded in 1964 and has been an RIA since 1971, founded by two Air Force pilots from the Philadelphia area. John Lawton, the company’s CEO and 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 Reviews From Advisors
If BLB&B represents one of the larger firms with a TradePMR relationship, Bischoff Wealth Management Group in Greenwood, IN, is on the smaller end of the spectrum, staffed by CEO Brian Bischoff plus a full-time client associate and two part-time associates. 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. 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 adds. “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 continues, “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: 5,000
$ under custody: $80 billion
Clearing platform: Self
Trading platform: Wealth Platform
Platform rating in latest T3/Inside Information software survey: 7.65
What did SEI think about its largest custodial competitors following each other to zero transaction costs on ETFs and stock transactions? “Not only did we go that route; we actually did it in 2016,” says Erich Holland, Head of Sales and Experience at SEI’s independent advisor business. “And our zero transaction costs includes institutional class share mutual funds as well – the DFAs and Vanguards of the world.”
The challenge for SEI in this custodial competition is that the firm has a strong reputation in a completely different business. Its history in the advisory marketplace began when, in the early 1990s, SEI was one of the leaders in managing and consulting for large pension pools and institutional assets. During the early age of the TAMP concept, SEI began offering the same access to separately-managed accounts, plus institutional performance and attribution reporting to the advisor space. At the time, most of the other outsourced providers were new to the business, primarily the larger existing advisory firms that were starting to offer to manage assets for their peers. SEI stood out because it treated advisors just like it treated its institutional investors.
The custodial initiative follows essentially the same path. The firm’s custody platform was born and popularized in the institutional space, and is now used by 11 of the top 20 U.S. banks. SEI Executive Vice President Wayne Withrow says that when the company decided to make a $1 billion upgrade to its custodial technology, the senior management team decided to do what it did with institutional asset management: to make the full feature set available to the advisor marketplace – once again giving them access to capabilities that are routinely used by much larger entities.
Meanwhile, the company has been building out its custodial management team. The most notable hires were Gabriel Garcia as Managing Director of RIA Client Experience and Business Development, and Shauna Mace as Managing Director and Head of Practice Management. Garcia was formerly a senior executive under Mark Tibergien at BNY Mellon/Pershing, responsible for building out that platform as it emerged as the profession’s third-largest custodian. After Tibergien’s departure, his professional journey included working in a top executive position at E*TRADE Advisor Services, which had similar ambitions before the acquisition by Morgan Stanley in early 2020. Mace, the founder of Inspire Growth, has worked as an independent practice management consultant and is continuing, under the SEI umbrella, to help the company’s advisory firms adjust to the new realities of the marketplace and scale their businesses.
SEI Total Wealth Technology Platform For RIAs
In addition to scaling institutional solutions to advisory businesses, SEI’s culture and history have focused on taking work and responsibilities off of the advisor’s desk. So it probably isn’t a surprise that the custodial division started a trend (followed now by others) to expand its custodial technology into a broader array of capabilities. Advisors who custody at SEI log onto a total wealth management platform – a set of integrated business solutions that includes technology that advisors on other platforms have to buy separately.
The front end is a built-out version of the Oranj trading and account management platform that SEI acquired from a large RIA/multi-family office firm in early 2021. There are actually two aspects to the platform which are different from what advisors get from the larger custodian competitors. The first is enhanced trading across accounts or households, plus automated tax-lot-level rebalancing (which can be set in a variety of ways), and a variety of institutional performance measurement tools that the firm has always provided through its outsourced investment platform. The result is that the SEI Wealth Platform functions much like the all-in-one, back-office software packages that are becoming increasingly popular in the advisor space, such as Orion, AdvisorEngine, and Advyzon.
The other aspect is more original: the integration of a variety of front-office features woven into the custodial tech, rebranded from Oranj to SEI Connect.
These features include a client portal and client engagement tools. “We’ve built out the secure vault, secure messaging, aggregation and integration through Plaid – and generally the ability for advisors to communicate back and forth with their clients,” says Holland. “SEI Connect is a collaboration tool as well as a vault.”
Meanwhile, SEI’s digital onboarding has recently gone through a major upgrade. “With one single interaction, an advisor can be set up on the SEI Wealth Platform, engage the client and gather client data through a 100% digital interface, go through the e-signature process, establish accounts and a transfer with the paperwork taking ten minutes or less,” Holland explains. Garcia adds that the account aggregation integration with Plaid means that instead of advisors and clients having to send an account statement to get the ACATs process moving, they can simply pull the necessary data electronically.
Why build all those features that advisors can easily purchase on the outside? “In order to help advisors run a successful advice business,” says Holland, “we think there are must-haves that shouldn’t be up for debate. These should all be standard with the custodial relationship, rather than add-ons.”
The firm started a trend which, readers will notice in these profiles, has caught on among the competitors to the custodial giants. The ever-expanding feature set of custodial platforms is one of the most interesting issues to watch in the coming years – and, of course, whether Schwabitrade and Fidelity finally decide to follow suit.
SEI Service Team Structure For RIAs
Like the other custodians profiled here, SEI doesn’t have a retail arm and doesn’t compete with advisory firms in the marketplace. Holland answers the question that comes up most frequently when he talks with advisory firms: RIAs 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 of course, those separate accounts are available.)
Another key issue is service. Where other firms are throwing more bodies at the phones in order to reduce hold times, Holland says that SEI rethought the structural efficiency of delivering responsive service to advisory firms. “We have our service folks and our relationship folks literally sit at the same desk across a glass pane from one another,” he says, “and it has been a wildly successful business model.”
“That model provides an immediate exchange of information and a lot more collaboration and understanding of the firms we work with,” adds Garcia. “It’s a unique experience that we didn’t have at the firms I was working with before.”
Holland says that advisory firms are asking about ‘tiered service structures’ that are a part of the Schwabitrade and Fidelity platforms. Would a $250 million AUM million advisory firm be able to get a dedicated service representative? What about down to $50 million? “You would if you had $5 million under management,” says Holland. “We’ve been champions for the independent advisor, and we’ve lived that,” he adds, noting that the only difference between smaller and larger firms is that larger firms may have more than one service representative due to the volume of actions they’re taking.”
Reportedly, when advisors ask if they can speak with an advisory firm that uses the larger custodial firms, they are told that the information is proprietary. At SEI, they’re given the contact information of their choice from several advisory firms (with permission) and are told to ask any questions they wish. “We try to make matches based on firm profiles,” says Holland, “so they can get an unbiased, unfiltered background that would be most relevant to their own challenges.”
SEI Pricing For RIA Custodial Services
The other frequent question is pricing, and SEI’s model is somewhat unique. SEI’s sweep cash accounts pay competitive rates, taking one of the largest potential revenue sources off the table. “Most of our competitors make most of their profits off the cash allocations,” says Holland. “For us, we built a lot more communication and transparency into our relationship model.”
Instead, advisors pay SEI via a bps-based platform fee, based on the type of business they’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.
“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.”
“By RIA custody standards, we are a smaller platform,” Garcia concedes. “But we are a 54-year-old publicly-traded company that serves $1.3 trillion in total assets. We bring stability and commitment and balance sheet and capabilities to the advisor marketplace that you don’t find elsewhere.”
Adds Holland: “We’re champions of the RIA market, providing a very similar value proposition to what independent advisors are providing to their clients.”
SEI Advisor Reviews
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 through 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.”
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 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 has dropped Advent Axys and is using SEI 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 cost 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.
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 Orion Advisor Services planning software 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 met with SEI representatives 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.”
“SEI cares more,” adds 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.”
Equity Advisor Solutions: Creative Custodian
Advisory firm relationships: 135
$ under custody: $4.4 billion
Clearing platform: Equity Trust
Trading platform: Orion Advisor Services
Platform rating in latest T3/Inside Information software survey: 6.75
Website: Equity Advisor Solutions
Here’s an interesting challenge. How, as a small custodial firm, would you provide custodial technology that not just matches, but is actually superior to the giant competitors who spend hundreds of millions on their tech platforms? You pay a licensing fee for the best off-the-shelf trading and rebalancing platform you can find.
“We wanted to create a really phenomenal front-end for advisors, something better than the usual custodial software platform,” says Sean Gultig, the founding CEO of Equity Advisor Solutions (EAS). “So we did an RFP, and looked at a whole bunch of systems out there, and selected Orion. From a technology perspective, it gave us a very strong offering, because every time Orion creates new capabilities, our advisors benefit from them.”
Many advisors consider TD Ameritrade Institutional’s VEO system to be the gold standard in custodial tech, but Orion – as an overlay over custodial structures – provides a broader set of capabilities, plus integrations with an estimated 63 other software solutions. Instead of affiliating with a custodian and then having to pay for a portfolio reporting overlay on the custodial platform, EAS-affiliated advisors get the whole package for free – in a more streamlined straight-through format. Advisory firms that have been using Orion, or teams moving to independence who want Orion’s advanced trading and rebalancing capabilities included in their custodial platform, will find EAS to be an attractive custodial alternative.
EAS’s other point of differentiation will be more interesting to a small cohort of RIAs. If an advisory firm is recommending/managing nontraditional, radically uncorrelated client assets like private equity, non-traded REITs, or cryptocurrencies, then EAS should probably rise to the top of their consideration, because unlike just about everybody else profiled here, the firm will custody and report on those assets in the client vault and client account statements.
“If the firm has any of those assets, we can accommodate them through the sister company at Equity Trust Company,” says Joseph Gerdes, who took over as CEO of Equity Advisor Solutions in May of this year. “We also do the tax accounting and process the tax forms through an outsourced vendor, and we’re planning to bring those capabilities in-house.”
Equity Advisor Solutions Pricing And Service Team Structure
EAS traces its origins to a Denver-based custodian called Fiserv Investment Support Services, which was the fourth-largest advisor custodian at the time. Fiserv was purchased by TD Ameritrade in 2008, and in 2010, Gultig began recruiting Fiserv’s previous management team, with a desire to build another service-focused custodian that would clear and custody through Equity Trust. Its revenue model was designed to be flexible, because RIA firms come in all shapes and sizes.
Early in the discussions, EAS will examine the advisory firm’s book of business and negotiate a custom fee schedule. The firm can opt for zero commission trades if EAS can make the relationship profitable on cash balances. EAS might propose subscription fees if that’s what the advisory firm prefers.
What about the dreaded tiered service model, where larger firms get access to a service team and smaller ones would be serviced through a call center? Gerdes points to the original FiServ commitment to provide every RIA with its own dedicated relationship manager, backed up by a service team based in Denver. “Every firm, regardless of size, will get their own relationship manager,” he says. “Larger advisory firms might get more than one on the account, based on the number of calls that are coming in.”
The Denver office includes a number of people who have a decade or more of experience serving advisors, but EAS has hit a growth spurt, and is now hiring and backfilling its back office team. “We’ve spent a lot of time lately thinking about the best way for us to service our advisors,” says Gerdes. “What is the right number of firms for a relationship manager to be working with, where they’re getting the service level we’re all comfortable with. We’re trying to do a better, job, internally, understanding the business models of our advisors, the business they’re transacting, the investments they’re making, the fees they’re generating, so we can match the right people to the right firms.”
EAS Onboarding And Transition Support
Recently, Gerdes added a dedicated transition team to the EAS platform, which not only walks advisors through setting up accounts and the ACATs process, but also helps train them (if needed) on the Orion system and the alternatives custodial features. Clients can transfer accounts without a wet signature, and more support is on the way.
“We’re deploying a technology crew that will create a fully digital onboarding process to get the accounts established, and do the mapping, and everything will be managed through our internal database,” Gerdes explains. “We’ll walk them through the process to assign ownership over those alternative investments.”
Gerdes readily admits that his custodial offering has been living deep in the shadow of some very large competitors. “Yes, we want to change that,” he says. But, he adds that in recent months, the firm has been going head-to-head with the Schwabs and Fidelitys, and gaining relationships. The firm has also grown through custody and clearing arrangements with several broker-dealers who were attracted to the Orion relationship, and also the firm’s ability to custody a wider variety of portfolio assets.
“So far, our growth has mostly been word-of-mouth,” Gerdes says – “the result of servicing the heck out of our clients. But you’re going to be seeing more of us at conferences in the coming years,” he adds. “We aren’t planning to stay a secret for very long.”
EAS Sleeve Support As A TAMP Custodian
Renée Toth, EVP of Flexible Plan Investments in Bloomfield Township, MI, represents one of the larger firms among EAS’s relationships: a TAMP with over $2 billion in investments over several thousand advisory firms. “We have accounts at Schwab, Folio, TD, Fidelity, MidAtlantic, and Matrix,” she says. “We have thousands of different approaches to managing money, mainly to support risk reduction.”
One important criterion for Flexible Plan Investments is the ability to provide sleeve trading – that is, the ability to trade a position across every account that uses a particular model. EAS became interesting to Toth when Orion developed that capability.
“At Schwab, we have to use our computer systems to create blended models for our clients,” Toth says. “E*TRADE was the first to offer the sleeve trading capability, TD has started to develop it, and Equity now has it as well.”
With assets in the multi-billion-dollar range, Toth is accustomed to getting a dedicated service team wherever the firm custodies assets. But some of these are better than others. “I would say that Equity is at the top of that service level rank,” she says. “They’re building something new for us; Schwab would never do that. I cannot speak highly enough about Equity’s willingness to take our suggestions and customize to our needs.”
For instance? “We wanted to incorporate their application materials into the online contracting systems that we built,” Toth explains. “To do that, we needed to have fillable PDFs, so that we could populate the PDFs out of our system for them to use with our DocuSign system. They did not hesitate to give us those,” she adds, “and sent them to us as soon as they could get them approved.”
Beyond that, Toth says that the EAS service staff is unusually experienced, many of them having worked at Fiserv back in the day. “You’re getting 25 years of experience with the people we’ve been dealing with,” she says. “They’re responsive, and you cannot stump them with a question.”
Toth adds that moving accounts from one custodian to another was a nightmare during the pandemic. “I don’t know if that’s because people were working remotely or just the volume in business across the board,” she says. “But with the mergers and staff changes, people we used to work with are gone now, and call times are longer, and it has been taking days and days to get an account set up. That is not the case with Equity,” Toth adds. “They are more nimble. And they are not going to compete with us, which has become one of the most important parts of working with them now.”
Equity Advisor Solutions Reviews From Advisors
When Jan Kuha moved away from Edward Jones in 2015 to start Benjamin Financial in Mt. Pleasant, SC, he expected that he would need to affiliate with a name brand in order to reassure prospective clients. “I found out, talking with my clients, that they are with me because of me,” he says. “I could be custodying assets at any company, and they would still work with me.”
With $30 million under management spread out over 200 clients who represent middle America, Kuha needs to watch his budget carefully. “I looked at Schwab, TD, and Scottrade,” he says. “But one of the factors was that I didn’t want anyone infringing on my profitability. The larger firms charge for their marketing and compliance, and I didn’t want their hands in my pocket.”
He chose Equity because of the superior custodial platform (Orion) and the fact that he didn’t have to pay for a portfolio reporting overlay. “At Edward Jones, I had access to every kind of technology and service,” Kuha explains. “And I’ve gotten all that and more with Equity.”
He cites the fact that the Orion client portal now offers built-in planning updates. “They built Advizr’s planning capabilities right into the client portal, and I didn’t have to pay extra for the upgrade,” he says. “The only thing Equity takes from me is $9.97 for a stock transaction and $20 for a mutual fund trade, and I don’t even use mutual funds any more.”
He also likes the fact that, as a smaller firm, he was able to command a dedicated service person. “He is my person,” says Kuha. “And there are other folks over there with whom I am on a first-name basis as well.”
Tommie Goggans, of the Goggans Group in Gadsden, AL, falls into the very small RIA category, with $13 million under management. The firm was founded in 2013, after Goggans left Ameriprise. “Early on, I began to understand that being a fee-only RIA advisor was the only way that I could truly be an advocate for my clients,” he says.
His first custodian was Trust Company of America, which was acquired by E*TRADE, which was subsequently acquired by Morgan Stanley, which sold the custodial business to Axos Financial. “After the Morgan Stanley acquisition, I began to look around, and Equity reached out to me, and I was really impressed by their technology platform,” he says. “For me, as a smaller advisor, knowing that I could be with a custodian that offered that kind of horsepower, that would allow me to do the same things for my clients that advisors many times my size could do – it made it possible for me to compete for clients. That was huge for me.”
Equally important was the service model. “I had developed a great working relationship with my relationship manager at E*TRADE,” says Goggans. “And I have developed the same relationship with my relationship manager at Equity Advisor Solutions. I can call and say, can we do it this way instead of that way? And they’ll say, yes, we can do that.”
He moved the assets over in August of 2020, and opted for the subscription solution, paying ten basis points on the assets. “That includes all the trading,” says Goggans. “And now I can sit down and pull an Orion report, add my logo, and I can compete with the largest advisors out there who are offering the same thing.
“I would push back on the idea that there’s no place for smaller practitioners,” he adds. “It’s just like in the advisor world, people want to hire someone they have a relationship with, and it doesn’t matter if it’s a big or small firm. Equity treats me like a client, just like the way I treat my clients.”
Axos Advisor Services: Staying In The Background
Advisory firm relationships: 200
$ under custody: $23 billion
Clearing platform: Axos Clearing
Trading platform: Liberty
Platform rating in latest T3/Inside Information software survey: 7.55
Website: Axos Advisor Services
Axos Advisor Services has the most complicated backstory among the custodial firms profiled here. The firm started life when E*TRADE, known for its discount brokerage platform, decided to follow the path of other retail brokerage firms (e.g., Schwab and Fidelity) and leverage its back-office custody and clearing technology used for retail clients into the advisory custodial business as well. The San Francisco-based company purchased Trust Company of America’s “Liberty” front-end technology for $275 million in 2017.
At the time, Liberty was an early entrant into the all-in-one advisor software concept; it provided performance reporting, unified managed account capabilities, and an in-house CRM, plus rebalancing and trading – all integrated into the custodial function. E*TRADE’s plan was to leapfrog all the constraints of legacy technology that had stalled progress at the larger competitors.
The move to zero trading commissions in 2019 was not exactly new to TCA/E*TRADE, since their original offer to advisors was zero ticket charges and a basis point fee for access that covered the entire relationship.
“The marketing plan was to create a referral program and really be able to go after the large RIAs that participated in the Schwab, Fidelity, and TD Ameritrade referral program,” says Mike Watson, head of RIA services at Axos. Watson was formerly the managing director of institutional sales at TD Ameritrade, and he watched the Schwabitrade scenario unfold with interest – particularly the fact that many advisors were being dropped from the newly consolidated referral program.
But then E*TRADE was purchased by Morgan Stanley in an all-stock transaction, and the custodial business was swept up in an unfamiliar culture that viewed it as an afterthought to the possibility of accessing E*TRADE’s stock plan administration business (where Morgan Stanley advisors could reach corporate executives with significant equity compensation administered on the E*TRADE platform) along with its retail customers that could be referred to Morgan Stanley advisors. “We were building out the new platform, and then Morgan Stanley came in and said, ‘heck no, we’re not going to send these branch clients over to independent advisors,’” says Watson “‘We’re going to send them to our captive advisors, and then we’re going to sell our packaged products.’”
In short order, Morgan Stanley turned around and sold the custodial business to Axos Financial – originally Bank of the Internet, one of the pioneers in online banking – for the bargain-basement price of $55 million ($220 million less than the price it had fetched three years earlier).
Suddenly the advisory world had a new custodial alternative in Axos Advisor Services, with $23 billion in advisor assets and 200 advisory firm relationships.
“The interesting thing,” says Watson, “is that when E*TRADE acquired Trust Company of America, Axos was actually the second-highest bid. We were bidding $225 million, and now we’re able to buy that same business for $55 million.”
Axos had already acquired Core Clearing – now Axos Clearing – back in 2018, which provided clearing services for 70 independent broker-dealers. And, of course, it offers lending services to RIA clients. “The whole plan,” says Watson, “was to build up the securities side of the business to complement what the bank already has. You know that the wirehouses are fantastic on the lending side, but their brokers are captive, and limited on what they can actually do for their clients on the investment side. Wouldn’t it be great if there was a financial services firm that offered banking services to independent advisors, where they could choose whatever investments they want, and they can choose to elect the banking services or not?”
Axos Banking Services For RIAs
So what does the offer look like? “We are providing one-on-one dedicated service people for every advisor,” says Watson, adding that some larger firms will have more than one, and the largest and most complicated relationships will tend to have the most experienced service teams.
“We have a lot of long-tenured people in our service office in Denver,” Watson adds. “They take a lot of pride in the service they provide.”
The cash options are unusually diverse. “You have the cash that the advisor keeps that is not an asset class; that covers the management fee,” says Watson. “That’s like the other custodians. But,” he adds, “for the cash in the portfolio, we have a treasury management team that help advisors manage cash liquidity needs on an individual client level, and also on the advisor level.” Plus, he says, the usual mutual funds and cash alternative solutions.
And, as mentioned earlier, because Axos is a consumer bank, advisors can tie into its services for mortgages, high-yield savings accounts, or the online checking accounts. “We also have a commercial banking business,” Watson adds. “We can do business banking relationships for the advisor who is running their own small business, like a line of credit, succession and transition planning, loans for M&A, and the same things for the advisory firm’s small business clients. We say to advisors, what do you need? And then we’ll curate solutions for them.”
This may sound like cross-selling, but the interesting thing to Watson is how the advisors on the platform are leveraging the bank to reduce client exposure to dysfunctional service providers. “They’ve been trying to get their clients to not work with those big banks, and instead bank with companies that don’t compete with their services,” he says.
Axos Minimums And Tech Platform For RIAs
Does Axos require minimum assets to get on the platform? “We have no minimums,” says Watson. “[But] we’re going to make sure that somebody has a business plan,” he adds. “We don’t want hobbyists,” he adds, noting that when he worked at TD Ameritrade Institution, the firm had a weatherman on the platform who had a handful of relationships. “If this is your livelihood, and you’re trying to support end clients, we want to work with you,” Watson says. “If this is something you’re doing on the corner of your desk, we are probably not the best solution for you.”
The Liberty platform offers all the functionality of an off-the-shelf trading/rebalancing/performance reporting platform, but it also integrates with Orion and Envestnet, and others can integrate through Axos’s API store. The rebalancing engine differs from some of the off-the-shelf offerings in that whenever a trade is proposed to harvest a tax loss or rebalance the portfolio, the system will show what the portfolio would look like after the trade.
“We think our approach lends itself pretty well to some of the smaller firms,” says Watson. “Their tech stack can get pretty expensive; the trading and client reporting alone can be 5-10 basis points of expenses. For the advisor who is under $100 million, chances are they won’t need to adopt some third-party technology.”
What does the platform NOT do? “No margins. No options,” says Watson. “Those are the big ones. He adds that Liberty can custody and tax report on alternatives like limited partnerships and non-publicly-traded types of assets, but those reports are not yet integrated into the reports on more traditional assets.
Axos Pricing For RIA Custodial Services
Cost? Axos offers its suite of integrated CRM, trading/rebalancing, and performance reporting for a monthly or quarterly subscription fee that is individually negotiated with each firm that comes on the platform.
“We’re individually underwriting each of the advisor relationships and trying to be very transparent with them,” says Watson. “We try to understand how often they trade, and then charge a fee which is all-inclusive, that includes any trades that are placed. What we’re trying to understand is: what are those clients paying today, and how can we make sure that client is better off when the firm is working with us?”
At this point, Axos is fielding calls rather than aggressively marketing itself – and the advisors who are calling are not happy with the service they’re getting from other custodial relationships. “They say things like, I don’t like Schwab. I think they’re a bully, and their service has gone from bad to awful,” says Watson. “But Schwab is a name my clients know. As much as I don’t like working with them, it’s going to be tough for me to get my clients to move to somebody that they may not know. Brand awareness,” he says, “is something we have to work on.”
That said, Watson says that in the past, the custodians would stay in their own lane; they weren’t supposed to be a visible part of the relationship. “At the end of the day, all we are, all of us, is a service provider for them, so they can be the service provider for their clients,’ he says. “We should be behind the scenes helping them.”
“We’re trying to put the advisor in the center of that flywheel of services they provide, all those other things around investment management, so the advisor can go deeper with their clients,” Watson adds. “We’re not the low-cost provider,” he says. “We are not a product manufacturer like Fidelity or Schwab. So we have to differentiate on the client experience, which is all about providing personalized service, one-on-one support, and deep relationship management. It’s about being a good partner. That’s how we’re planning on winning together.”
Axos Advisor Services Reviews From Advisors
Peter Murphy, President of Founders Financial in Baltimore, MD, runs a complicated operation: Founders is a standalone RIA that manages some RIA offices that it acquired, and is also a broker-dealer, serving 95 independent financial advisors as independent contractors. The offices, in-house or independent, rely on Founders for compliance, investment management, and technology – plus practice management consulting as needed. They can tie into a TAMP that Founders manages and operates, or they can create their own client portfolios. In all, the TAMP manages roughly $1 billion in 60 model portfolios, while independently-managed assets total around $500 million.
It actually gets more complicated than that; the independent advisory offices can clear through Schwab or Pershing for their bespoke portfolios, or they can work through Axos, and the TAMP clears through Axos, making Axos the largest custodial relationship for Founders. Murphy is thus in a unique position to compare and contrast the alternatives.
“We have a unique voice at Axos that we don’t have at Pershing or Schwab, simply because Pershing and Schwab are so large,” Murphy says. “Our ability to influence development and get things done is significantly greater at Axos than it is at the other two firms; we’re one of the larger company clients of Axos, whereas we are just another number at Pershing and Schwab.”
This, of course, is reflected in the attention Founders gets from the service teams. “Because of our size, we have tremendous accessibility with the service team, and dedicated people who are serving us,” says Murphy. “We’ve had a very positive service experience, and good relationships with the people who work with us,” he adds. “It has been a good long-term partnership.”
What about the Liberty platform? “Most other firms use third-party solutions for trading and billing,” says Murphy. “But with Liberty, we don’t have to do that. The technology is so integrated into the custody platform that it has created tremendous efficiencies for us. That,” he adds, “has been a huge differentiator.”
Specifically, Murphy says that Liberty has provided Founders with the ability to run multiple model models in a single account, and report on the models individually and comprehensively across accounts and households. “Liberty lets advisors see models, drift levels, and sleeve-level reporting,” he says. “For a smaller RIA, to be able to go to a single place where you get custody and clearing, trading, billing, reporting all in one place, it’s a pretty compelling value proposition. It simplifies your world.”
Was Murphy impacted by all the transitions the company has gone through in the past few years? “The turnover we’ve experienced wasn’t at the service team level,” he says; “it was mostly at the executive level. There were some changes,” he adds, “but I would say we’ve seen pretty good continuity in terms of the service teams. During all the transitions, the team there put in the effort to make sure everything we needed was kept intact.”
The bottom line is that, despite the temptation to move assets to avoid all the various changes in the name of the custodian, Murphy is glad he stayed. “Working with a smaller custodian, your chance of getting attention is going to be greater,” he says. “And for a custodian to offer a turn-key solution where all the parts speak to each other, it’s really powerful.”
Similarly, Stacey and Karl Frank, partners at A&I Financial in Denver, CO, were familiar with the Liberty custodial platform long before it was under the Axos roof.
“We were planning to take the firm to become an independent RIA back in 2008,” says Karl, “and the plan was to go with Schwab at the time. I was on the board of directors locally with the Financial Planning Association,” he continues, “and one of our sponsors was Trust Company of America. I looked at their technology, and they made it SO much easier for us to fire up our RIA. They did so many things better than Schwab.”
The firm has continued its affiliation through the various ownership changes. “The weirdest thing is that there really wasn’t much change,” says Karl. “We had to do a lot of explaining to our clients about the acquisitions, but from the standpoint of managing our business, it was pretty much the same. Our customer representative has been there since the beginning and is still there. The customer support team that we talk with on a day-to-day basis know us.”
“Through it all, they kept the same trading platform,” Stacey adds. “So that was very helpful.”
Karl says advisory firms working with a TAMP may not realize how difficult their lives can become if they decide to break off to independence and handle things on their own. “In 2009, our client assets were in FTJ FundChoice, custodied at Schwab, and it was super easy: just log into their website, create the allocations, and they made all the trades. But when we considered breaking away,” he continues, “Schwab didn’t make it easy. Suddenly we had to find new performance calculation software; we had to figure out how to bill, trade, upload, and download files.”
Liberty, he says, made the transition much easier. “It did the performance calculations and allows us to create a unified managed account, where you could have stocks in one sleeve and ETFs in another, or everything in one,” he says. “It made it a lot easier for us to have model portfolios and bill client accounts to scale our business.”
The firm currently has 200 clients and $500 million under management. “Our primary focus is financial planning,” Karl says. “So we wanted the portfolio management aspect to be super-easy. From a trading standpoint, if we want to rebalance, we can take hundreds of accounts and models across the board, rebalance, and we’ll double-check and a few days later it will all be done.” The platform also allows him to set time frames for automated rebalancing or set tolerance bands.
What about the service? “One of the reasons that we’ve been loyal to Axos throughout all the ownership changes is that the customer relationship team is part of our team,” says Stacey. “They’ve really plugged into our business, to the point where it’s now a complementary relationship. They know how we trade, what our operations processes are, and we’re not on hold for a long time.”
She says that Liberty has been a steady presence in the company’s life. “It’s very functional and reliable, but it isn’t glamorous,” says Stacey. “You understand it and it makes sense, it never breaks down, and it’s pretty inexpensive.” At various times in the interview, Karl and Stacey compared Liberty to a reliable Honda Civic or a Volvo.
“When I look at other platforms,” says Karl, “and I think about having to buy software, performance reporting software, account aggregation software, boy, I roll my eyes. I’m so glad that I’ve got it all on Liberty, where it’s all at the custodian, where I can view my trades and portfolio performance and fee calculations all in one place.”
Altruist: Ultramodernizing The Custodial Platform
Advisory firm relationships: 1,300
$ under custody: (Not Disclosed)
Clearing platform: APEX Clearing
Trading platform: Altruist
Platform rating in latest T3/Inside Information software survey: 8.24
The brash newcomer platform on this list is something called Altruist, based in Venice, CA. The firm is so new and growing so rapidly that any report of assets or advisor relationships would be outmoded between the time of writing and the time of publishing. “There’s a pretty good amount of luck involved,” says Altruist fonder Jason Wenk. “It’s awful to say, but the pandemic really helped us. The sudden need for digital tools and digital onboarding has been a nice tailwind for us. A typical month for us might be anywhere from 40 to 80 new firms signing on,” he adds, “and from a feature standpoint, people can do so much more, so much more richly with Altruist than we could a year ago.”
With its advanced tech platform and attractive pricing, Altruist is destined to be a strong competitor to the larger custodians. Wenk has a track record of successes in the fintech and service space, starting with the founding of the Retirement Wealth RIA, whose clients pay $600 for their initial financial plan. Wenk followed that up with Formula Folios, a turn-key asset management platform (TAMP) which now has roughly $8 billion in assets serving 30,000 customers.
The new custodial venture was born somewhat accidentally, after Wenk’s team of programmers developed fancy new onboarding technology for his TAMP 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.”
Wenk stepped back and took a hard look at his frustrations with traditional custodial service, and his first observation is that their service activities seemed to involve a lot of paperwork and too many back-and-forth conversations with the custodial service teams.
Another pain point was the way revenues were collected. “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. “And there weren’t any truly good fractional share platforms. I thought: there has to be a better way. Why is it that I can get 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. “A firm with $50 million in client assets has to spend the equivalent of ten basis points on their assets to its software vendors. To me, that made no sense.”
This is a long buildup to the Altruist feature set. Altruist follows the embedded finance trend of building an entirely new, user-friendly front office onto a traditional back-office platform. It offers custody through Apex Clearing, including mutual fund trades. Apex in the background and Altruist as the front-end of the custody and clearing platform offers a much more comprehensive software suite than the larger custodial competition, combining trading with an account-level rebalancing engine that rivals the commercial products, tied directly into its client asset database. There’s a client portal, plus the aforementioned seamless onboarding that is all handled electronically and largely automated.
Altriust Technology Platform For RIAs
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,” 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.”
Initially, 1,600 RIA firms filled out the survey and put themselves on a waiting list.
The biggest pain point? Altruist’s onboarding process makes you realize just how clunky and antiquated the traditional onboarding process had become – especially as the online versions were still closely mimicking the traditional wet signature protocol, except with DocuSign instead of a fountain pen.
“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 documentation and disclosures.
On the portfolio management side, Altruist’s biggest point of differentiation is that it offers fractional share trading, which means that advisors can create model portfolios and have them apply to even the smallest client accounts. “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, now 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 fintech systems that all served different functions for the same client. “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 develop. 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 provides functionality that most advisory firms have to buy separately.
“The first thing we built into the custodial package was a fully-automated portfolio accounting and reporting system,” Wenk explains. “And we built out fully-featured rebalancing capabilities.”
Meanwhile, the fee-billing features are among the most comprehensive in the business; they allow for billing on initial financial plans, support subscription models, and allow advisors to specify complex tiered and one-off payments from client accounts.
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 portfolios. The software lets clients 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. Altruist – without any intervention by the advisory firm’s staff – will automatically allocate that contribution directly into the clients’ assigned model portfolio(s), bringing them back to (or toward) the target 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 and time commitment at the advisor staff level, and the drag of having the money sitting in cash.”
The second departure is that Altruist’s custodial software – the reporting and rebalancing features – is portable. That is, Altruist’s custodial software functions like an off-the-shelf trading/rebalancing platform which 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 to work 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.”
Outside integrations, however, are still a bit limited. “We integrate with RightCapital [planning] and Wealthbox [CRM] today, and we chose them because they also have a fairly modern infrastructure,” says Wenk. “It’s a lot easier to work with someone who has a really well-documented API library, vs. data-only integrations.” The integrations are deep enough that the programs operate as native to the custodial platform. “All of the work that the advisor is doing inside of RightCapital is surfacing in our client portal and mobile app in real time,” says Wenk. “As you open up that client account, it is right there; you don’t have to hit any refresh buttons or upload a PDF. It is truly a bidirectional flow of data in real time.” Redtail and Riskalyze are next on the integration list.
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.
“We provide real-time online status on everything,” Wenk says. “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. “When you go to Schwab and TD and Fidelity,” he adds, “they’ll tell you that 40% of the calls that go into their service center is just a status checkup. Hey, I wanted to follow up on the paperwork that we sent in last week.”
What if advisors want to contact the service team? “We reinvented the custodial service experience,” says Wenk. “We’re the first platform to offer all of the services through online chat. We don’t have a phone number. People complain all the time about being put on hold just to get someone to help them. With us, everybody gets a real live human being within 30 seconds, and the resolution time is typically under two minutes, directly on the app. If it’s better to get on the phone, of course, we do have phones,” he adds. “But more than 90% of service issues can be handled via chat.”
In an earlier version of this article, we mentioned that there were limitations to Altruist that its early adopters were struggling with. “We didn’t have trust accounts at launch,” says Wenk. “We added a bunch of different retirement accounts, like SIMPLE IRAs, SEP IRAs, and Solo 401(k), plus custodial accounts, UTMAs and UGMAs. If you’re looking for parity with an incumbent custodian that has been around for a long time,” he adds, “a year ago we probably supported 50-60 percent of the types of accounts that most advisors were using. Today it’s more like 95-98 percent.”
The firm also heard from advisors that Altruist needed to include teams-based functionality. “We were initially built for solo firms with a single user, and if you had more people, they all had the same permissions,” Wenk explains. “But most firms have multiple people in the business with different roles, some are licensed, some are not,” he adds. “So we created a teams infrastructure that allowed different types of permissioning, for the trading role, the compliance officer role, the principal role.”
Altruist Data Reporting And Reconciliation
A more nuanced upgrade is the way client data is housed and presented. “We hired a senior-level director on our development team who was one of the architects that built Yodlee, and then went on to work at Envestnet and was part of the Tamarac team,” says Wenk. “When he came onboard, he said, gosh, if I could do this all over again, I would have done it this better way.”
The problem, Wenk says, is that the off-the-shelf portfolio management systems are built to support a lot of manual data reconciliation – the transaction data, the dividends and stock splits, and all the other moving parts that sometimes show up as errors in the client records. “Entire teams are working offshore, 12-14 hours a day in their different time zones, looking at advisors’ data so that by the time people wake up in the morning, it’s finally accurate,” says Wenk. “That’s not the most scalable, and it’s not always accurate. So we wanted to build a different architecture.”
The solution was to take any data format that comes into the Altruist system and reformat it into the Altruist format. “So the only thing that ever gets surfaced on our front-end is what comes from our own data files,” Wenk explains. “That allows for us to make sure that nothing will ever be surfaced that has been incorrectly reconciled. The lay version of this,” he adds, “is that it doesn’t matter where the data comes from now. Nobody has to look at the data mapping, and if a company that we get the data from changes how they tag some kind of incoming data feed, all of that is automatically reconciled.”
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, now 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.”
Altriust Tech And Custody Pricing For RIAs
Which brings us to pricing. What do 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 on our platform are free.”
After that, he says, the cost is one dollar per account per month, any account size. ETF and individual security trading fees are set at $0, and some mutual fund families, like Dimensional Fund Advisors, come in at $5 per transaction.
“We don’t get those trades for free, so we give them to advisors without a markup,” Wenk explains. “And there are fees if people do wires and things like that. But if they’re just trading equities and ETFs, those are all commission-free.” Apex charges a $15 yearly administration fee for some accounts, and that is passed on at cost as well.
There is a small markup on cash holdings – Wenk estimates that it is under a basis point a year – but he also says that, due to the fractional share feature, the total cash across all client portfolios is under 4%, often just 1% or so.
Wenk says that this is a major reason why the larger custodians haven’t allowed advisory firms to trade fractional shares in client accounts. “Fractional share trading has been very possible for a very long time,” says Wenk. “But if you introduce fractional shares, clients won’t have as much cash waiting to accumulate enough to invest in individual stocks or ETFs that might have a $100 NAV. And so those big public companies would no longer have 10-14 percent of their client assets in cash. And,” he adds, “if you look at their quarterly earnings, that’s where the biggest chunk is coming from.”
Add it all up, and you have a package that is ideal for a startup advisory firm that has to watch its pennies. “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, but its scale allows larger advisory firms 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,” Wenk says, “the best way to do that is to look at those who have the largest gaps, and address their pain points.”
The various features that make less-wealthy clients profitable for advisory firms have attracted the attention of advisors that Wenk was initially not targeting – and they’re beginning to realize that those features are attractive for mainstream clients as well. “The great irony is that a lot of larger firms are now beating down our doors,” says Wenk. “At first, they were dipping their toes in; they might open a few accounts and say, I’m going to wait until you can show me more features and be around a little longer. Now,” he adds, “we’re having pretty decent-sized firms making wholesale moves onto the platform, moving their core business, so our assets are growing at a pretty good pace.”
Suddenly, Wenk addresses me, not as the interviewer, but as the long-time industry observer who has watched the painfully slow evolution of legacy platforms. “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,” he adds. “But in this environment, advisory firms need better pricing and true digitization.”
Altruist Reviews From Advisors
Matthew Fox, the founder of Ithaca Wealth Management in Memphis, TN, opened up his planning shop in 2019 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 minimum asset requirements. 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 a mention of a company called Altruist on Twitter. “I reached out and immediately got on their waitlist,” Fox adds. “They opened it up for me to join and formally start my firm.” Ithaca Wealth Management was serving 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 onboard 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 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 rebalancing 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. I’m not doing any of that now.”
The Altruist software also generates performance statements. “It creates a nice-looking PDF of performance, you can select whichever accounts you want to include and you can select the range,” Fox says. Recently, Altruist made it easier to add a firm’s own logo and cover page.
Finally, Fox likes the ‘ideas’ section of the platform, which is a forum where advisors can request features and comment on each others’ 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.”
Similarly, Justin Castelli, at RLS Wealth Management in Fishers, IN (north of Indianapolis), started his firm 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.”
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 clients with smaller accounts 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.
The Altruist client portal, Castelli says, “gives everything that the client would need, and it looks real 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’d 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.”
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 features 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.”
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, and 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, you’re able to have their performance reporting, billing, and automated trading, all those capabilities, without having to spend a quarter of your budget on software. And it’s simpler and easier to use,” he adds. “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.”
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