Since it launched in 2019, advisor software developer Altruist has taken competitive aim at existing RIA custodians and often unwieldy advisor technology stacks, building an all-in-one wealthtech platform that could handle client onboarding, account opening, portfolio management, rebalancing and reporting.
Yet it was still an “introducing broker/dealer.” It could accept trade orders, but not the money for the trades nor could it hold client securities directly. It was in essence a tech overlay on top of Apex Clearing, the behind-the-scenes custodian to the advisors using its platform.
But that is changing. Altruist’s own self-clearing platform, Altruist Clearing, goes live this week, the final step in becoming a full-service custodian, the only one, argues CEO Jason Wenk, built exclusively from the ground up for the registered investment advisor market.
Wenk said it was always Altruist’s intention to go self-clearing, and now, with over 1,700 RIA firms using the platform, with about 40 to 50 new firms coming on board every month, the firm has the necessary scale to launch. He would not quantify the assets on the platform but said they have grown 400% in the past year. The firm has about 350 employees.
“We knew day one we’d always go self-clearing because it’s the only possible way to compete long term with the big custodians,” Wenk said, in an interview with WealthManagement.com. “It’s not economically feasible to compete with them if you’re not full self-clearing.”
Mazi Bahadori, chief compliance officer and executive vice president of operations at Altruist, said the process first involved hiring people who could build out the architecture of a self-clearing firm, including back-office systems, books and record-keeping processes, and transaction capabilities as well as the ability to accommodate ACH and wire transfers. Some of those functions were built in-house, while some were brought in through partnerships. For instance, Altruist partners with BMO Harris for banking services, including wire and check transfers and to secure FDIC insurance. It partners with FIS Global for back-office technology support.
Wenk claims with the launch of the self-clearing platform, Altruist becomes the first “vertically integrated” and “all-in-one custodian.” By “vertically integrated,” he means that the key software an RIA needs is built natively into the custody platform, eliminating the need for third-party-fee billing software, for instance.
“When I think about vertical integration, it’s taking what today in most advisor practices is probably three or four different (software programs) that they have to integrate with their custodian. We embed them directly into the custody platform,” Wenk said.
“Other companies have tried to build all-in-one software solutions, but if you’re an all-in-one software solution and you have to sit on top of a custodian, you’re at the mercy of that custodian, meaning you can’t build digital account opening if your custodian doesn’t support digital account opening,” he said.
Wenk says that with the possible exception of Goldman Sachs' nascent RIA custodian, Altruist is the only firm where an advisor can open an account, fund the account and do ACAT transfers (automatic transfers between internal and external brokerage accounts), all fully digital, in the same day, without the need to sign a paper or use an external application such as DocuSign. That removes the friction from the client onboarding process and shortens the time to open accounts to "a few minutes." An advisor can also access everything from performance reports to fee billing all in one application.
Doug Fritz, co-founder and CEO of wealthtech consultancy F2 Strategy, said Altruist now has a platform to handle the same account types as the big incumbent custodians, like Pershing and Fidelity, and that sets it apart from other technology entrants. Custodians to robo-type investment platforms built for tax-deferred or tax-exempt retirement portfolios, for example, don't work for the complex, multiregistration portfolios the typical RIA is managing.
“I never would have talked to a custodian like that for any of my RIA clients, because as much as they said the tech was cool, if you didn’t have a way to port tax basis into the custodian, your clients lost all their IRS tax data. That’s massively impactful to taxable accounts,” Fritz said. “With Altruist, going self-clearing, we’ve got a digital-first version of what I’ll call ‘a traditional custodian model’—multiregistration, cost basis at the core.”
The traditional RIA custodians are the gatekeepers to innovation, Wenk said, and they should have the operating leverage to provide all the needed software to the advisor. Instead, a wide range of niche software companies have come in to fill the gaps in the advisor workflows that the custodians should accommodate natively.
“We’ve allowed custodians to get a free pass, where they don’t provide a whole lot of software and services, they’ve just created this narrative of ‘Well, you want to have independence, you want to get best-of-breed software, so go out and buy whatever you want, and we’ll send the data via flat file.’ Not even via API, in most cases, and the industry has just accepted that.”
Altruist is hoping to be a unique custodian for RIAs in that it does not have a direct-to-consumer business competing with its clients. At the bigger custodians, the consumer platform takes up a lot of the internal resources, including R&D dollars, he said.
“All of [the other custodians] have spent way more time and money innovating direct to consumer businesses that compete with advisors than they have innovating on advisors’ businesses,” Wenk said. “Case in point being things like their incredible slow pace on digital account opening and digital management of accounts.”
To their credit, Fritz says no line of code in the incumbent custodians’ tech is more than 10 years old; Schwab and Fidelity, especially, are constantly upgrading, maintaining and automating. And at least we know the big custodians can scale.
“The big guys—you got to throw them a bone—to operate trillions of client assets in a platform requires some big-time technology,” he said. “Altruist has a great platform; we’re very impressed with what they’re able to do. We do not know yet if it can scale.”
“I don’t think anybody right now should run to the hills and say, ‘I’m leaving Fidelity for Altruist.’ We don’t know if Altruist is scalable. It should be. I think he built it in a way that would make it scalable, but we don’t know it.”
For now, Fritz says he is trusting Altruist for advisors looking to add a custodian for smaller, sub-$500,000 accounts. For advisors looking for a lower-cost, more-automated way to manage mass affluent clients, it makes a lot of sense, he said. “I’ll look to expand how we would use it with our clients as it matures.”
But Wenk’s revenue model will be similar to other custodians. The firm will not charge a platform fee for its services. It will make money from payment for order flow, but that is "negligible," Wenk said, and they'll be more focused on delivering best execution of trades.
The company will also make money on cash sweeps, but Wenk says they intend to offer clients an “industry-leading yield.” Even so, Altruist’s clients don’t hold large cash positions, he said, because the firm offers fractional shares and built-in model-based trading.
Altruist has differentiated itself from the big incumbents in the space by having no minimum assets under management for the advisors it serves, and Wenk said that has helped cultivate a lot of smaller firms as clients, a pace of acquisition that has accelerated in the wake of Schwab’s acquisition of TD Ameritrade. The conversion of advisory accounts at TD advisors to Schwab's advisor platform is scheduled for Labor Day weekend 2023.
Even so, Wenk says there is not a lot of "lateral movement" in the RIA custody space; rather the firm is finding more success with new entrants, including breakaway advisors and others establishing RIAs for the first time.