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Schwab is a big custodian with plans to step it up in 2010

Bernie Clark will have a juggling act of keeping service top notch and shoring up the hybrid offering

Author Brooke Southall February 17, 2010 at 8:10 AM
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Bernie Clark: We will be spending a great deal of money

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Mentioned in this article:

LPL Financial
RIA-Friendly Broker-Dealer, RIA Welcoming Breakaways, Advisory Firm
Top Executive: Dan Arnold

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

Stephen Winks

Stephen Winks

February 17, 2010 — 6:45 PM


Schwab has been instrumental in growing the RIA business as a vendor of custody serices, but largely relys upon the advisor to reinvent the wheel when it comes to providing enabling resources such as (a) prudent processes with an audit path to necessary statutory documentation to definitively establish fiduciary standing, (b) advanced technology which makes continuous comprehensive counsel possible, (c) work flow analysis necessary to simplify the delivery of advice and to create scale, (d) advisory services support for each of the ten major market segments advisors serve and (e) the management of conflicts of interest, none of which is afforded by Custodians for fear of fiduciary liability and their being incongruent to the brokerage/custody business model. Thus the inconvenient truth of all custodians is they can not provide the enabling resources to RIAs and brokers that would safely simplify the execution of advice (fiduciary counsel)in a scalable, easy to use and manage format. In that vein all custodians are somewhat insular to the more specific needs of brokers and advisors.

Thus, the future of growing the custodty business is custodians aligning with an intermediary RIA which will provide all the enabling resources cited above in support of RIAs who seek safety, scale, ease of execution and management in delivering a extremely high level of continuous comprehensive counsel with an audit path necessary to prove fiduciary standing to rightfully skeptical financial services consumers.

This level of counsel is extremely rare and is beyond the reach of under resourced advisors. Industry surveys have found no RIAs are structured for this level of support.

So, if custodians are well served by the advancement of advisory services resources which presently do not exist and are not plausable for custodians to provide for fear of fiduciary liability, then why doesn’t Schwab, Fidelity, TDA and Pershing individually or collectively fund the development of these necessary enabling resources and literally give it away through a none profit—which would safely bring fiduciary standing within the reach of every advisor? This would tilt the scale toward advive away from brokerage that would exoponentially grow the audience for custody services in the best interest of the consumer and would make the RIA preeminent in advisory services.

It is beyond me why enterprising RIAs with the philanthropic support their custodians do not advance an unassailable, unimpeachable fiduciary solution. This is the much needed market leadership consumers and advisors deserve which will provide a level of trust the industry needs to win back the confidence of the investing public.

As Bernie Clark looks at ways to grow Schwab, he and other custody executives must work within their self imposed limitations and find ways to support brokers and RIAs indirectly, if not possible directly. In any event, the future of the business is in RIAs building large scale institutionalized support for fiduciary standing—not presently possible in a brokerage or custody format and beyond the capability of the under resources individual practitioner.


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