Indy and Asset Custody

or Register to post new content in the forum

11 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Jan 27, 2009 11:07 am

Just laid off from Mother Merrill yesterday and have a couple interviews with some indy firms.  I wanted to ask you experienced indy folks some questions.  While at Merrill I had a lot of people worried about ML going out of business and what would happen to their assets, etc.  Obviously with ML the ML broker/dealer is the only place you can custody most assets.  How does this work in an indy firm? 

 
If you are doing fee based planning (series 65/66 stuff), can you still charge an asset management fee and have a different financial institution have custody of assets?  Is there a rule where you have to have custody of the assets or could another firm, like Schwab have it?  How does this work if you have a BD/RIA combination firm?  Does the B/D make you have custody to provide fee based advice?
 
I am thinking it could be a major advantage to offer advice separate from custody of assets and have the client place their own trades in their E*Trade account. 
 
Why do I get the feeling that you are going to say "no duh, that is how it works!" 
 
Thanks!
Jan 27, 2009 12:15 pm

Brief and oversimplified answer is as an RIA you choose to use a custodian (such as fidelity, Schwab, etc.) to keep custody of client assets, and you generally (not always) have limited POA to act on their behalf in these accounts which is granted as part of your client agreement, either in a discretionary or nondiscretionary manner.  Alternatively, you could simply provide advice for a fee and the client implements (or not) your recommendations themselves, as you mention with the E*Trade account.  If you also do b/d business, the b/d will almost certainly require you to cutody and trade through them.  Not a huge deal but it does add to cost and complexity somewhat.

You just need to get client authorization for and make relevant disclosure of whatever arrangement you choose.

The key for you, Akkula, at this point will be the speed with which you can get set up elsewhere so you can try to retain your existing clients.  The longer you wait, the more they are told by the FA who inherited the accounts at ML that you have left the business, the less chance you will have of retaining them as clients. 

That should be your focus: quickly find an independent where you can immediately be bringing clients over now.  A month from now will be proabably too late for many of your clients.  Your main asset is your existing client base, but that asset has a short half life.  See if LPL or RayJay (or other larger indys) have local branches that you might be able to quickly join.  You may not get a salary but with the higher payout you'll be good if you act quick enough to retain most of your clients.  You then use them as your b/d and their corporate RIA, which may limit your flexibility somewhat but gets you operational asap.  You can always consider further changes sometime down the road when you have the luxury of more time and planning.

Good luck.


Jan 27, 2009 5:24 pm

If you don't have your S7 you cannot affiliate w/ a BD. If you just do'planning' and recommending this and that you rely on your client to place orders and pay you -- a huge pain. Check out TDAmeritrade -- they have a platform for S65's only -- where they 'hold the clients money in some kind of trust accvount. I'm fuzzy on the details or mechanics as I went w/JPM. 

Jan 27, 2009 7:04 pm
MinimumVariance:

If you don't have your S7 you cannot affiliate w/ a BD. If you just do'planning' and recommending this and that you rely on your client to place orders and pay you -- a huge pain. Check out TDAmeritrade -- they have a platform for S65's only -- where they 'hold the clients money in some kind of trust accvount. I'm fuzzy on the details or mechanics as I went w/JPM. 


You're not only fuzzy on the details, you're fuzzy on the big picture.  Why do you feel compelled to respond to posts that involve topics on which you have no apparent first hand experience or knowledge?

Jan 27, 2009 7:38 pm
Morphius:
MinimumVariance:

If you don't have your S7 you cannot affiliate w/ a BD. If you just do'planning' and recommending this and that you rely on your client to place orders and pay you -- a huge pain. Check out TDAmeritrade -- they have a platform for S65's only -- where they 'hold the clients money in some kind of trust accvount. I'm fuzzy on the details or mechanics as I went w/JPM. 


You're not only fuzzy on the details, you're fuzzy on the big picture.  Why do you feel compelled to respond to posts that involve topics on which you have no apparent first hand experience or knowledge?

 
Because he knows fancy esoteric terms like "beta" "alpha" "delta" "gamma" and how they have zero relevance in the conversation, duh.
Jan 28, 2009 6:33 am
Morphius:

Brief and oversimplified answer is as an RIA you choose to use a custodian (such as fidelity, Schwab, etc.) to keep custody of client assets, and you generally (not always) have limited POA to act on their behalf in these accounts which is granted as part of your client agreement, either in a discretionary or nondiscretionary manner.  Alternatively, you could simply provide advice for a fee and the client implements (or not) your recommendations themselves, as you mention with the E*Trade account.  If you also do b/d business, the b/d will almost certainly require you to cutody and trade through them.  Not a huge deal but it does add to cost and complexity somewhat.

You just need to get client authorization for and make relevant disclosure of whatever arrangement you choose.

The key for you, Akkula, at this point will be the speed with which you can get set up elsewhere so you can try to retain your existing clients.  The longer you wait, the more they are told by the FA who inherited the accounts at ML that you have left the business, the less chance you will have of retaining them as clients. 

That should be your focus: quickly find an independent where you can immediately be bringing clients over now.  A month from now will be proabably too late for many of your clients.  Your main asset is your existing client base, but that asset has a short half life.  See if LPL or RayJay (or other larger indys) have local branches that you might be able to quickly join.  You may not get a salary but with the higher payout you'll be good if you act quick enough to retain most of your clients.  You then use them as your b/d and their corporate RIA, which may limit your flexibility somewhat but gets you operational asap.  You can always consider further changes sometime down the road when you have the luxury of more time and planning.

Good luck.

 
Morphius,
 
Just wanted to say thanks for all of the considerate posts to those considering switching to an RIA.  The sharing of your experience and your candor is both appreciated and enjoyed. 
 
Windknot
Feb 6, 2009 2:15 pm

If you are planning to charge 100% fees and need no help, go the RIA route.  Talk to Schwab, Fidelity Registered Investment Advisory Group, and TD Ameritrade as a starting point.

 
If you need more support, consider the hybrid route with an independent broker/dealer.  The custody of assets will be at a clearing firm such as Pershing, National Financial, RBC Dain, JP Morgan, etc.  Your customers will make checks payable to the clearing firm not the broker/dealer.  The broker/dealer will provide you with a platform of products and services, compliance support, and do the billing for you on fee based accounts and you can also fall under their investment advisory umbrella; so you don't need to form your own RIA firm. 
 
The firm I am with, Cantella, allows reps to carry accounts at National Financial, Pershing, JP Morgan, and Raymond James.  Depending on which firm I place an account, determines what products and services I have available to me.  I do mostly individual equities and bonds; for fee based accounts, I can buy or sell anything for 25 basis points and put my fee on top of that.  For bigger accounts, I eat the transaction fees if my costs won't add up to 25 basis points.  I do mostly stocks and bonds and love the research.  Other reps do just mutual funds and they usually pick from about 1500 funds with no ticket charges.  I do give up 10% of my commissions and fees being associated with a broker/dealer, but I figure I save most of it by paying less for errors and omissions insurance, not having the headaches and audit risks of my own RIA, and the flexibility of keeping my trail, annuity and commission business. 
Mar 18, 2009 5:16 am

25 bps on the fee based and 10% on the BD and they pick up all the E&O and compliance.  There is something wrong here.  Most firms have an internal compliance charge of 5% and then there is the technology cost.  Even if you work from home, there is still operational overhead that a firm has.  10% covers all that?!!

ash

Mar 18, 2009 2:00 pm

Ash:

Read the last sentance again. He said pay less for E&O, not that they pick up all the E&O.
Jack Black
Mar 19, 2009 1:10 pm

Akkula-My b/d allows us to choose from any of the 3 major clearing platforms (pershing, national, first clearing) or we can use any 1 of a number of other 3rd party places, like Schwab.  then there are numerous 3rd party manager platforms like SEI/Curian as well.  all depends on whether you want to strictly go RIA or hybrid.

Mar 23, 2009 11:50 pm
JackBlack:

Ash:

Read the last sentance again. He said pay less for E&O, not that they pick up all the E&O.
Jack Black



JackBlack:

OK good point... but E&O is a small part of the overall overhead for a firm.  They usually buy one policy for the firm and divide it up to the advisor.  But here is the catch... the firm may have a $3 million policy, but it cover only $1 million per indecent.  So if the error is great than $1 million, the firm and advisor is screwed.  But a $3 million policy is about $20k a year for the firm.  The real cost is in the labor to manage the firm.

ash