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The emerging asset custodians rake in small RIAs

Demand comes from IBD reps, start-ups, breakaways and refugees from the big three custodians -- including a few advisors seeking to avoid a new Fidelity fee

Thursday, December 23, 2010 – 3:03 PM by Brooke Southall
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Frederick Van Den Abbeel: We did benefit from Fidelity’s decision and it also introduced us to other Fidelity RIA firms which were not affected -- through referrals.

Two small RIA custodians are ending the year with near-record results, thanks in small part to the imposition of a custody fee on small advisors by Fidelity.

Both Shareholders Service Group Inc. of San Diego, Calif., and Trade-PMR Inc. of Gainesville, Fla., report that they brought in an average of about RIA per business day.

The total haul for each company in 2010 was 250 new RIA custody clients. Trade-PMR will finish with 800 advisors and SSG just a shade less. The total roughly matches the companies’ recruiting records in 2009. Neither company would provide any information about assets or asset growth.

These firm specialize in handling the very smallest RIAs — often ones with less than $10 million of assets — though they also handle some larger ones.

Frederick A. Van Den Abbeel, executive vice president in charge of sales for Trade-PMR, says that his firm has won 30 RIA practices that were formerly with Fidelity this year. He says the large company’s new fee was a clincher in some cases.

Last straw

“We did benefit from Fidelity’s decision and it also introduced us to other Fidelity RIA firms which were not affected — through referrals. The majority of these firms were already exploring other options and have been in contact with us previously. The fee increase was the last straw for most.”

The RIAs recruited to SSG were of higher quality and larger size in some cases than in previous years, according to Barry Boyte, executive vice president, sales and marketing at Shareholders Service Group.

“We’ve seen more of that in the past six to nine months than in the first part of the year,” he says. See: A small RIA custodian in San Diego faces a new challenge: accelerating growth [updated]

Boyte attributes part of the increase in size and quality to the decision by Fidelity Institutional Wealth Services in July to charge $2,500 per quarter to advisors with fewer than $10 million of assets in custody as of Dec. 31. Previously, Fidelity charged those advisors a quarterly $1,250 fee. See: Fidelity will soon charge a big fee to small advisors

The company decided to charge for custody services for small advisors as part of an effort to bolster service levels by hiring more people.

Lost few advisors

Fidelity has lost few advisors as a result of the soon-to-be-charged fee, according to Steve Austin, spokesman for Fidelity.

“The vast majority (of advisors with AUM of less than $10 million) have either told us they remain committed to grow their existing business on our platform to reach the minimum or they’re looking at alternative solutions like joining another RIA to make the minimum.”

Mike Zarren, director of relationship management at Ceros Financial Services, Inc., a small Rockville, Md.-based custodian, says that his firm was the beneficiary of one such advisor. He consolidated his firm’s assets from Fidelity to Ceros to avoid the fee but — because Ceros uses National Financial as its clearing backbone — he could still tell clients that their assets were parked at Fidelity. “It was a success for us,” Zarren says. See:Ceros Financial hangs a 'welcome’ sign out for RIAs who trade actively.

Both SSG and Trade-PMR have been growing fast into the third tier of custodian, behind TDAmeritrade and Pershing. Scottrade is on a similar track. See: Scottrade rakes in small RIAs.

Custody fees aside, the biggest source of new RIAs for SSG are advisors leaving independent broker-dealers to go purely fee-based. Second are existing RIAs. A third source of new business are other professionals starting an RIA – often a CPA or someone in the insurance business looking to add a new element to their practice.

Rich IBD reservoir

IBD reps are also the richest reservoir of new RIAs for Trade-PMR, followed by reps at captive firms like Edward Jones or Merrill Lynch. The number three category is RIAs coming over from the largest three custodians – Schwab, Fidelity and TD Ameritrade, according to Van Den Abbeel.

Zarren says that his firm is also realizing greater success recruiting from the IBDs and from LPL Financial of Boston and San Diego in particular in the wake of its IPO.

Another source of IBD reps are ones that are leaving smaller broker-delaers that are going out of business. “A lot of them are just going under,” he says.

Fees aside, TradePMR is making one big shift in its marketing approach. Van Den Abbeel is moving from Gainesville, Fla. to Pleasant Hill, Calif.

The West Coast is already one of Trade-PMR’s strongest markets and the company believes it can build on that success, he said. See: Trade-PMR is elbowing its way into the RIA custody market with cheap software and expensive advertising slots

West Coast play

Also, there is a concentration of technology firms, separate account managers and other support firms favored by Trade-PMR in the West that Van Den Abbeel would like to establish good relations with.

He adds that he is pleased by the strong presence of the Financial Planning Association in the Bay area having served as the president of the FPA chapter in Tampa Bay.

Mentioned in this article:

Shareholders Service Group
Asset Custodian
Top Executive: Peter Mangan



April 8, 2011 — 9:54 PM

I’m contemplating joining an RIA in San Diego. the firm has less than $100M in assets.

I have my series 7 and series 66, have just left a B/D and wish to pursue fee-based only business. No commissions.

What is the RIA firm required to do for my licensing? Register me as an IAR with the IARD? Thanks.

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