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wealthies-ceo-panel-2.jpg Photo by Diana Britton
(L-R): Director of Editorial Strategy David Armstrong, SignatureFD CEO Heather Fortner, Merit Financial Advisors CEO Rick Kent, NewEdge Advisors CEO Alex Goss and Integrated Partners CEO Paul Saganey

The Custodians Are Coming

Are your custodians eyeing your clients? ‘The margins are there,’ said one RIA CEO.

A quartet of CEOs up for awards at last week’s Wealthies sat down with’s Director of Editorial Strategy David Armstrong to share insights around growth, challenges and the evolution of the registered investment advisory space.

Panelists discussed the importance of networking and collaboration, shared their thoughts on the potential for technology—AI-driven processes in particular—to further transform the space, expressed differing opinions on remote working and talked about the impact of private equity.

One major topic of discussion among the panelists was the possibility of custodial institutions moving into the space in a more direct way. There was general agreement that broker/dealers are already adding W-2 models and buying up RIA practices to get into the high-growth channel, but some panelists suggested it’s the custodians who will be coming next.

“One of the things that we've seen just over the course of my career in the industry is that it feels more economically driven, the relationship with your custodian, than it has in the past,” said SignatureFD CEO Heather Fortner.

Fortner said it would be “remiss” for the industry to discount the possibility that custodians might take on a more aggressive role and said she believes a slow shift has already begun, hastened by Charles Schwab’s acquisition of TD Ameritrade in a deal she said excluded “a lot of RIAs.”

“I know they have said, 'We're not going after your clients; we're not going to be in your space,’ for forever and a day. But I do think that we have seen the evolution of that, the seeds being planted as they expand their services, as they acquire different types of firms, as they lean more into the economics of the relationship,” she said. “One thing that's always in the back of my brain is what is it going to look like five, 10 years from now? And is our business prepared for what that shift might be?”

“They’re coming. I have no doubt about that,” agreed Integrated Partners CEO Paul Saganey. “The margins are there.”

Comparing them to insurance companies just before the turn of the century, Saganey said he thinks larger custodians will ultimately come after ultra-high-net-worth clients but suggested they would have a hard time competing with RIAs that already have gotten a head start in that area.

“They’ve been a great partner up until now,” he added.

“Custodians do a really good job of being custodians," said NewEdge Advisors CEO Alex Goss. “But they don't necessarily need to move into the space.” He raised doubts that large custodial institutions would be attractive to advisors who have already gotten a taste of independence and clients who prefer a boutique experience.

Merit CEO Rick Kent said he doesn’t see Fidelity or Schwab making a play for their clients but that all broker/dealers want a piece of the action.  

“The major ones are all players at this point,” he said. “Some are buying up practices. Some are bringing in an RIA that doesn't look like the broker/dealer, but the broker/dealer owns it, and they're saying you can join them and you don't have to deal with them as the broker/dealer. So, different things that they're doing. But that's a big shift in our industry right now and it's going to be interesting to see how that plays out.”

Panelists suggested independent firms can protect themselves against such encroachment by effectively utilizing emerging technologies, developing partnerships and working collaboratively with one another to foster best practices, and partner where possible, to achieve benefits of scale without the bureaucracy of institutions.

“We need to come together and figure out how to partner,” said Kent. “I think that’s where the key is.”

Kent said that as advisors are expected to provide more value and more services, RIAs will have to find ways to do so. Going it alone diminishes the impact a firm is able to have.

“It's being out in the community; it's being out in the industry,” said Fortner.  “You find those people that are excellent at what they do, and you go and you figure out a way to partner with them. Because, honestly, at the end of the day, if you're truly a partner with someone, you can build something together that's probably more powerful than what you're going to build on your own.”

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