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Clearing Firms Matter to Advisors. In fact, one of the biggest deals in the independent b/d business last year hinged on whether the b/ds being sold could maintain their relationships with their old clearing firm. In March of 2007, Pac Life sold three b/ds to LPL Financial. Considering that LPL is self-clearing, it could have required that the new b/ds clear through LPL. Instead, the deal specified

Clearing Firms Matter to Advisors. In fact, one of the biggest deals in the independent b/d business last year hinged on whether the b/ds being sold could maintain their relationships with their old clearing firm. In March of 2007, Pac Life sold three b/ds to LPL Financial. Considering that LPL is self-clearing, it could have required that the new b/ds clear through LPL. Instead, the deal specified that the Pac Life b/ds would continue to clear through Pershing.

“LPL obviously has a very good self-clearing platform, but some advisors are not comfortable crossing that bridge,” says Andrew Kalbaugh, CEO of Mutual Service Corporation, one of the acquired b/ds.

These days, many advisors are loathe to give up their valuable custody and clearing relationships. You could say that's because the custody and clearing business has evolved: Once simple purveyors of back-office functions, efficiently and accurately settling trades or warehousing client assets, custody and clearing platforms have begun offering a lot of new bells and whistles.

The New Clearing And Custody

“In clearing, it is not just about clearing anymore,” says Dennis Gallant, principal of consulting firm Gallant Distribution Consulting in Sherborn, Mass. “Clearing is just some thing that everybody needs — it's the peripheral services they're piling on top of it that adds the value proposition.” These days, custodians and clearing firms have the scale that independent b/ds and RIAs don't, he says, enabling them to leverage deals with technology and tool providers, software vendors, and to offer data aggregation, among other things. “Look at what Pershing and Fidelity have become — Pershing especially. Lately, they're adding so many different capabilities on top of their primary functions. Schwab is also doing practice management and training; they're not just doing custody,” Gallant says.

Indeed, clearing firms and custodians are positioning themselves as integral parts of affiliated b/ds and RIA businesses. Firms have come to rely on their services. In fact, a firm's “work environment,” and its “clearing and settlement” services, are the biggest drivers of satisfaction for investment professionals, according to a recent study sponsored by National Financial, a unit of Fidelity Investments. “Ten years ago we really looked to the clearing firm to basically clear the trade and do the accounting, and now it is really becoming a business partnership where they're helping us to recruit and work with high-net-worth individuals — they have programs on structured products, alternative investments and fixed income,” says James Nagengast, COO and CFO of Securities America, which clears through Pershing and National Financial. “I think they've really come to realize that their success is tied to our success.”

Competition For RIAs Heats Up

Considering that RIAs are one of the fastest-growing segments in the investment professional marketplace, custodians and clearing firms are scrambling to compete for their business. Perhaps that is why firms like Schwab have made RIAs their bread-and-butter. As you probably know by now, Schwab is the king of the RIA marketplace with $583 billion in AUM and 5,500 advisor clients. But its rivals in the business — TD Ameritrade, Fidelity and Pershing — are growing at a breakneck pace.

Fidelity's Institutional Wealth Services (formerly Fidelity's Registered Investment Advisor Group), for example, custodies nearly $350 billion and has more than 4,000 advisor clients, putting it in a close second place. Meanwhile, in two separate deals, T.D. Ameritrade's Institutional Advisor Division recently bulked up by acquiring Fiserv's Investment Support Services (ISS), which provides products and services through Fiserv Affinity, Inc., and Fiserv Trust Company, one of the nation's largest independent trust companies. The acquisitions added $25 billion in assets and 500 new RIA firms to TD Ameritrade's operation, bringing the total count to 4,500 RIAs and $100 billion in assets.

But it's Pershing that is the fastest-growing upstart: Over the past three years, Pershing Advisor Solutions (the RIA custodial affiliate of Pershing) has tripled the number of advisory clients it serves, as well as the revenue it generates and the assets it manages, says CEO Mark Tibergien. Pershing now has more than 480 client relationships, and custodies more than $73 billion. On the independent b/d side of the clearing marketplace, Pershing clears for more than 1,000 b/d clients, and manages $950 billion in assets.

It's a challenging marketplace to master because it's so fragmented, says Matt Bienfang, a Tower Group analyst. “It's not like going out and capturing a 200-staffed b/d. You might have a market of 20,000 RIAs, and each one has its own shingle and does business differently.”

There's outside competition for RIAs as well from smaller b/ds that have been creating corporate RIAs in house. For instance, take brokersXpress, LLC, an online trading and reporting platform for independent investment professionals, and a subsidiary of optionsXpress Holdings, Inc., a retail online brokerage specializing in options and futures. As both an independent b/d and an RIA, brokersXpress — which went self-clearing in 2006 and has about 300 reps — targets independent and wirehouse reps who want to become their own business owners and operate under the umbrella of an RIA.

Practice Practice Practice

What ultimately determines the selection of one clearing firm over another? Good client services and accurate reporting are a given, so firms are competing to find additional ways to support advisors — namely practice-management support and consulting services dealing with almost every business practice under the sun, from recruiting talent to team-creation to customer satisfaction.

David Welling, vice president of marketing and advisor business management for Schwab Institutional, Charles Schwab's RIA custodian business, says choosing a custodian is like buying a new house: “Not only do you have to think about what you need tomorrow, but the kind of life you're going to have five or 10 years down the road, and who can support you as you change.”

As an RIA grows, it becomes a more complex entity, and that, says Welling, is where practice management comes in. In the fall of 2006, for example, Schwab launched “GrowthPoint,” a practice-consulting program that helps advisors grow and benchmark their practices competitively. The firm keeps adding services to that program: In the fall of 2007, it rolled out health care and benefits for its RIA clients at low big-business-like rates. Also last fall, it began offering trustee and trust accounting and trading services to its RIAs.

Meanwhile, T.D. Ameritrade launched a mentoring program whereby novice RIAs are paired with experienced veterans to help them expand their businesses. And brokersXpress offers an onsite education program for both wirehouse and independent reps who want to learn what it takes to become an RIA.

Over at Pershing, the firm has launched a program called TalentConnect that helps advisors at both independent b/ds and RIAs get help from the home office with tasks like forming a team practice and developing a niche in the marketplace. ValueAlliance, another Pershing program, aligns consulting specialists with firms on issues such as compliance, marketing, sales, and mergers and acquisitions. Advisors get help from the specialists through seminars, workshops and one-on-one consulting. “Because the market is so tight for talent, we believe that the best new source for talent may be retaining and developing existing investment professionals,” says Susan Theder, director of Segment Marketing, Pershing LLC.

Some firms are helping with outright recruiting, too. First Clearing, the affiliate and clearing firm of Wachovia Securities, offers b/d clients a program called FA Recruiting Services, which locates newly licensed professionals, matches them up with, and helps integrate them into, firms. George Keith, an executive vice president of sales for National Financial, with nearly $710 billion in assets and more than 330 clients, says it is “extremely focused” on helping clients retain reps and bring in new talent. The firm has even come out with a recruiting program for its b/d clients. Keith says breakaway brokers appreciate this service because it is customized to match-up talent with the right firm, educate them on the move, and assist and train them once they're on board.

Tech Made Easy

Another key point of competition for custodians and clearing firms is technology, where the name of the game these days seems to be integration. After all, what's the point of having multiple high-quality software solutions if they can't be used together — or to their fullest potential?

That's why, Tibergien says, Pershing Advisor Solutions has over 1,200 people focused on technology integration — rather than innovation — in the firm's technology group. Similarly, Schwab has a team of consultants who visit firms and look at their back-office functions — how they process, bill, trade and open accounts — and examine areas of opportunity with existing technology. “It is very easy to spend money on technology and not get the return on the money you expect,” says Dan Skiles, vice president of technology at Schwab. “We want to make sure the advisors we work with are getting that return and scalability.”

In some cases, clearing and custody firms are teaming up with third-party providers that allow b/ds and RIAs to keep all of their client information in one place. For example, Pershing partner iNautix USA serves both independent b/ds and RIAs in operations improvement, and provides solutions for all of their businesses — not just the ones custodied with Pershing. Fidelity also has strategic alliances with firms such as data manager Fetter Logic, which provides consultative technology solutions to retail and institutional b/ds. Like iNautix, Fetter Logic creates comprehensive statements that include the client's total assets, not just those custodied by Fidelity.

And Securities America has worked with both of its clearing firms (National Financial and Pershing) to build its Office Advantage Platform, which gives reps a consolidated view of their accounts, regardless of where they are custodied. As Securities America's Nagengast puts it, “Independence demands choice.”


Firm Number of clients*
Pershing (division of CSFB) 1,000
National Financial Services (Fidelity Investments) 330
Bear Stearns Securities Corp. (Global Clearing Services) 315
Penson Worldwide Inc. 277
Southwest Securities 202
Goldman Sachs Execution and Clearing 200
First Clearing, Wachovia Securities 125
RBC Dain Correspondent Services 170
Broadcort (Merrill Lynch & Co.) 118
Wedbush Morgan Securities 115
Sterne Agee Clearing Inc. 86
Mesirow Financial Holdings Inc. 79
*Figures provided by individual firms.


RIA respondents to a Fidelity study ranked the services that most contributed to asset growth at the firm over the past three years.

Custodian Service Firms with 100+ percent growth Firms with 50-99 percent growth Firms with 1-49 percent growth
Tools Integrated with existing technology 64% 60% 57%
Institutional trade coverage products 28 13 25
Banking products 26 7 20
Access to private equity opportunities 25 13 13
Source: Fidelity: “Fidelity RIA Metrics: Profiles of the Fastest rowing Firms,” 2008, a survey of, 436 RIA firm with at least $25 million in assets under management.


When it comes to the services, products and tools provided by custodians, here's what RIAs said they need most.

The List %
Single point of contact 66
Direct access to functional experts 54
Dedicated implementation team 51
Wide range of investment products 65
Institutional money market and cash management 53
Retirement income products 26
Advanced trading support 37
Dedicated fixed-income trading and service desk 37
Access to alternative trading venues 22
Research and Reporting
Tax reporting 64
Portfolio and performance reporting 59
Tax lot accounting 53
Practice Management
Referrals to customers 54
Access to high-net-worth clients 52
Marketing support 28
Technology Needs
Tools that integrate with current technology 59
Proprietary platform that includes all functionalities needed 48
Asset allocation tools 30
Source: Fidelity: “Fidelity RIA Metrics: Profiles of the Fastest rowing Firms,” 2008
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