Pershing and Schwab are also angling for advisors game to bag some mega-clients

October 25, 2010 — 4:19 AM UTC by Brooke Southall

1 Comment

After several years of building a big family office capability for the super rich, Fidelity Investments is availing RIAs with big clients with the same specialized services to help them compete with big private banks.

Fidelity is making the upmarket services and technology available to RIAs with clients and prospects with $50 million of assets. It already has a handful of advisors using the services and there are 50 RIAs who are showing active interest.

Triggered by technology

Until now Fidelity Family Office Services was mostly only used by 121 single family offices with a combined $20 billion of assets. But recently [as of June] the Boston company finished upgrading the technology for family offices, which made it easier to offer the platform to more advisors. See: Fidelity is winning family office assets at a terrific rate

Fidelity WealthCentral for Family Offices integrates portfolio reporting and trading and allows a view of holdings including alternative assets. Services such as trust, partnership accounting, private foundation services and general ledger export services are included. Most important: it can provide an ultra-affluent client with a dedicated relationship management team and investment analyst/trader.

Advisors’ ultra high-net-worth clients also will be able to attend private events designed to allow them to network with single family offices and share best practices.

These services have historically been beside the point for RIAs but these advisors got sophisticated at a time when ultra-affluent clients became open to looking beyond the big-bank brands like JPMorgan, BNY Mellon and U.S. Trust that have traditionally monopolized these assets.

‘RIAs are getting in front of wealthier and wealthier opportunities. These wealthy families are looking around and these RIAs are getting in front of them,” says Mike Durbin, president of Fidelity Institutional Wealth Services. “This offering makes the RIAs immediately very competitive.”

See: Tiger 21 members have shifted priorities in choosing who manages their investments

Pershing Advisor Solutions – aided by it relationship with BNY Mellon – is growing largely on the strength of new multifamily offices and more than 50% of its new RIA relationships of late [and a third of its total assets in custody] fit the multifamily office category, according to Julie Harrington, director, business development for Pershing Advisor Solutions. See: BNY Mellon’s new RIA custody unit will collaborate [and compete] with Pershing Advisor Solutions

Mark Tibergien CEO of Pershing Advisor Solutions says that Fidelity’s new foray is indeed old hat for his company.


“I think it’s newsworthy for Fidelity, but it’s something we’ve been doing for a long time,” he says. “[Our sister company, BNY Mellon] has a huge number of these relationships or we can do it right on our own platform.”

Durbin says that Fidelity Institutional Wealth Services and Fidelity Family Office Services work together harmoniously because they share a technology platform, WealthCentral, and are part of the same company. He questions how closely Pershing and BNY Mellon are tied technologically or otherwise.

Fidelity’s family office assets in custody jumped to $20 billion through Sept. 30, a leap of 54% compared with Sept. 30, 2009.

Fidelity also grew the number of single family offices served from 91 to 121, a jump of 32%. The average user of Fidelity Family Office Services has more than $160 million of assets.

Schwab Advisor Services has also built a custody business for multi-family offices. It declined comment for this article but it previously disclosed that it serves 135 multifamily offices with $42.8 billion in assets, which makes for a firm average of $317 million in assets. Schwab declined to provide data to compare with last year.

The San Francisco brokerage company defines a family office as an advisory firm that serves multi-generational families with at least $25 million of assets under management. Fidelity Family Office Services only serves single family offices.

Semantic importance

But Durbin says that there are important distinctions to be drawn between the family office offering of Fidelity and Schwab.

Durbin says that it has become fashionable for RIAs who serve big clients with some specialized services to call themselves multi-family offices. In fact, there are only a handful of true multi-family offices – single family offices that have more than one family as a means of sharing resources.

Durbin believes that Schwab handles mostly big RIAs that use the multi-family office tag for marketing purposes and that the services it provides are correspondingly different.

“The multi-family office is not a single family office multiplied by X,” he says. “It’s an RIA that wants to represent that they offer these [specialized] services. What Schwab is saying is that they’re in the market of RIAs that represent themselves as family offices.”

Indeed, single family offices are – in effect – the executive office of a large family fortune and the family members who have a claim on it. Only about 15% of these offices doing business with Fidelity are registered as advisory firms [you don’t have to be registered to manage your own money] and their average assets are about $900 million, though the median is closer to $500 million.

Unwieldy, burdensome

The purpose of these offices is to make sure that – in effect – the family owns the money and not vice-versa because such large fortunes can prove unwieldy, burdensome and rife with the possibility for conflict – especially when multi-generational issues are considered.

Historically, ultra-affluent clients have wanted a major brand name like Goldman Sachs, Morgan Stanley, Northern Trust and J.P. Morgan. But RIAs have been equally wary of taking on Moby Dick-like clients. The problem is that they begin demanding services that are not part of the RIAs core competency and end up being more trouble than they’re worth.

Brodie L. Cobb, managing director, Presidio Wealth Management of San Francisco, says in a release that he believes that Fidelity’s service is “critical” for delivering top-notch service to ultra high-net-worth families.

If his custodian can help him meet families’ needs, he can concentrate on what his firm is accustomed to: working with clients strategically “to help them achieve their primary goals, such as protecting, preserving and growing assets.”

The custodians are competing harder for family office clients because of the ways the overall market has changed. RIAs now are more ready to tackle family office clients toe-to-toe with private bankers from the companies with dominant brand share: Goldman Sachs, State Street, Morgan Stanley, Northern Trust, J.P. Morgan and BNY Mellon, he adds.

Shrinking gaps

“There is an element of dissatisfaction but the other element is that RIAs have come a long way,” Durbin says. “The gap in capabilities is shrinking at a time when incumbents [i.e. the Morgan Stanleys and Goldman Sachs-type brands] are under close scrutiny.”

I conferred an executive from one of these major brands who questioned whether Fidelity was positioned to compete with his company for big family accounts. Fidelity does not charge a custody fee and place assets on a trust platform.

At first glance, the latter seem like an upside, the executive saw it the other way around.

“With Fidelity essentially offering custody as a loss leader, it drives a lot of good questions for families – is that a sustainable business model? How does Fidelity drive revenue from my assets? Am I the right fit for a broker dealer custodian? I already receive a consolidated statement from my custodian, why is a single statement so notable at fidelity, etc.” the executive asks.

Indeed, Robert Ellis, industry consultant with Fasttrack Advisors, believes that Fidelity [and Schwab] operate at a major disadvantage in trying to enter this business.

“As far as a custodian brand for a single family office, State Street trumps Fidelity — or Schwab,” he says.

Nothing to match?

Ellis adds: “Custodian fees run from 3 basis points to 12 basis points for large accounts. If Fidelity is willing to forgo that charge, they may get some looks from the single family offices. However, with only one client, SFOs will mostly defer to the safer bet, State Street. State Street is on SunGard Global plus, a monster 25-year old trust platform with multi-currency and multi-custody capabilities. Fidelity does not have anything to match it.”

Ed Orazem president, Fidelity Family Office Services, says that having a assets on a trust platform historically has not – in practice – made the difference whether people get paid in a calamitous meltdown.

Orazem adds: “Experts tend to disagree [with each other]. I think it’s fair to say in an ultimate liquidation, it’ll take longer to get your assets out of a broker-dealer – by days.

Pershing’s advntage is that the advisor can choose to put assets on either a bank or brokerage platform with corresponding prices, according to Tibergien.”We have 40 of them that use both,” he says.

The bank versus brokerage platform is not a deal killer, according to Orazem.

“I have never lost a client opportunity over this issue,” he says.

Mentioned in this article:

State Street Wealth Manager Services
Asset Custodian
Top Executive: Marty Sullivan

FIS WealthStation
Financial Planning Software
Top Executive: Gary Norcross

Share your thoughts and opinions with the author or other readers.


Stephen Winks said:

October 25, 2010 — 3:26 PM UTC


Under Dodd-Frank the family office services cited are required to be enumerated as a matter of transparency, thus just having these services or access, though important, is just the beginning of the commodization of access to advisory services support for every adviser, not just family offices.

The question is the skill of the adviser in using theses services which is the elephant in the room no one wants to talk about. It is prudent process, or what you do with enabling resources that adds value not the enabling resources. There are no brokers or custodians that make an extremely high level of fiduciary counsel safe, scalable and easy to execute through a (a) prudent process (asset/liability study, investment policy, portfolio construction and management) tied to statutory documentation to assure a prudent expert that fiduciary obligations are being fulfilled and creating a safe business environment in which advisers can work, (b) advanced technology to assure the provision of continuous comprehensive counsel and transparency in investment cost and adviser compensation necessary for fiduciary standing, (c) work flow management tied to a functional division of labor (Adviser, CAO, CIO) necessary to make advice easy to execute. (d) conflict of intererst management (not just disclosure) necessary to actually act in the client’s best interest, (e) expert advisory services support for each of the ten major market segments (Mass, Retail, HNW, Ultra HNW, DC, DB, Public Funds, Profit Sharing, Foundations and Endowments and Taft-Hartley) advisers serve.

Presently neither brokerage firms or custodians have made advice safe, scalable and easy to execute as required under Dodd-Frank. The fact that trust services, partnership accounting, composite reporting, Foundation Services, Philanthropic Services, general ledger export services, etc are being touted tells us how unprepared the industry is for the transparency and accountability of fiduciary services required under Dodd-Frank. Banks are closer but must modernize as well. When the industry starts talking about a scalable prudent process that actually empowers advisers to execute fiduciary standing—that is when we should be celebrating to high heavens.

Incremental innovations take us closer, but are not remotely close to empowering the adviser to act in a fiduciary capacity in the consumer’s best interest required under Dodd-Frank.


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