Cut of alternative investment custody fees is symbolic to key Schwab advisors

September 10, 2009 — 2:32 PM UTC by Brooke Southall


Fidelity Institutional Wealth Services is waiving annual custody fees for all new alternative investment accounts as part of a broader price-cutting program on behalf of RIAs. and their clients, it announced this morning.

The timing and content of the news regarding these particular fees is likely to have an effect, says Jeff Roush, managing partner of Argos Wealth Advisors LLC of Napa, Calif.

“They’re probably trying to stimulate some intense discussion about what they do versus what Schwab can do,” he says. “It’s a sore spot because Schwab’s [IMPACT] conference is next week” in San Diego.

The reason that alternative investment fees are a potentially sore subject is that Schwab informed its advisors last Spring that they would have to move hedge funds, offshore investments and other unconventional investments off its custody platform.

Schwab advisors reacted badly to the news and 22 advisors sent a letter of protest to the company. Some advisors on the list were from well-known and respected firms in the industry like Aspiriant and Litman/Gregory..

Schwab was able to assuage some of these advisors by creating an interim solution.

“Until our long-term custody solution is in place, advisors will not be required to move alternative investments off Schwab’s platform,” says Alison Wertheim, spokeswoman for Schwab. “And when the transition does take place, toward year-end, we will support advisors and give them the time needed to reduce the operational burden.”

That solution will include deals with two trust companies and the possibility of holding some assets on Schwab’s platform in concert with the Depository Trust and Clearing Corp.

Decision to move is made

The time that it is taking Schwab to confirm a long-term solution is forcing some hands, says Roush who was one of the advisors who signed the letter to Schwab.

“We already made our decision to move our assets to Pershing because we have to,” he says. “That’s not a comfortable decision.”

The deciding factor for Roush was a heart to heart discussion with Pershing’s top executives who convinced him that the Jersey City-based clearing giant wouldn’t follow Schwab in its policies regarding alternative investments.

Fidelity’s fee cuts for alternative investments custody show that Fidelity is also likely to stay in the game, says Sean Cook, president of DCA Global Wealth Management who was also one of the signers of the letter to Schwab. He has also spoken to various custodians to gauge their willingness to hold alternative assets, he says.

“The fees are de minimus anyway [at $50 per position] but it’s a validating symbol of their willingness to stay in alternative investments,” Cook says. “We all have the lingering concern that other custodians are going to realize” they need to get out of that portion of the business.

Finalizing agreements

Schwab will soon put lingering concerns to rest, according to Wertheim.

“We know that our long-term solution needs to meet advisor expectations for service, integration and ease of use,” she says. “We also know advisors have very different approaches, needs and areas of investment. To that end, we have chosen two trust companies that can handle our alternative investment custody referrals with the level of service advisors expect from Schwab. We are in the process of finalizing our agreements with them now.”

Editor’s Note: Sean Cook left me a message after I published this article to clarify two points. Though the fees on alternative assets charged by custodians are small in the big picture, they are still “material” to RIAs. His additional concern is that the both trust companies that Schwab is negotiating with charge custody based on assets and not by the number of positions. This new pricing system could have the effect of raising prices. “It could add up,” Cook says.

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