The Jersey City RIA custodian believes a defined list of criteria gives it an edge

March 8, 2010 — 5:23 AM UTC by Brooke Southall


Brooke’s Note: As part of the Asset Custody Project, I am speaking to leaders of the various asset custodians in the RIA industry to learn more about how they are trying to distinguish their services and products from competitors. In my interview a couple of weeks ago with Mark Tibergien, CEO of Pershing Advisor Solutions, we discussed the thorny issue of the custody of alternative assets. It’s a subject that most custodial executives prefer to say little about at all. What Tibergien had to say on the subject was detailed and complex enough that I pulled those comments out of the Asset Custody Project profile of Pershing that RIABiz ran last week. From the comments, I wrote this article.

In a recent interview, Mark Tibergien drew a distinction between Pershing’s approach to the custody of alternative assets and that of its rivals, saying that Pershing’s approach is easier for RIAs to deal with but still will be secure enough to satisfy regulators.

The Jersey City, N.J.-based asset custodian established nine requirements in September that alternative investments, such as private equity, hedge funds or private placements, must meet in order to be considered suitable for custody.

“We’ve developed a list of requirements consistent with where regulators are going,” says Mark Tibergien, CEO of Pershing Advisor Solutions.

Though Pershing declined to provide the list of nine pre-requisites, one of the requirements is that the alternative assets must be subjected to auditing standards set by the Public Company Accounting Oversight Board. The PCAOB is a private-sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002.

External and independent oversight

The Act required that auditors of U.S. public companies be subject to external and independent oversight for the first time in history. Previously, the profession was self-regulated.

Jeff Roush, principal of Argos Wealth Advisors LLC of Napa, Calif., appreciates Pershing’s procedural approach. He moved some of his company’s alternative assets from Schwab advisor Services to Pershing last year.

“Argos utilizes both [Pershing and Schwab] and each are scrutinizing alternatives more closely than in the past with the recent regulatory focus,” he says. “Although the two firms’ processes are similar, our experience to date is that Pershing’s is more streamlined for alternatives resulting in a more efficient timeline to move through the approval process.

Roush adds that Pershing’s willingness to create a road map for adding alternative assets to its platform has made it easier overall to run his RIA practice.

“This is critical in today’s markets given that advisor’s carefully monitor every aspect of their resources,” he says. “Anything ending in more efficiency in the implementation and monitoring of the client portfolio contributes immensely to the overall business model.”

Shopping for a new custodian

Roush is one of a number of advisors who went shopping for a new custodian for alternative assets when Schwab announced that it would discontinue the service last year at this time. Schwab barred offshore investments outright and only allowed RIA clients with existing domestic positions to continue to add to them.

Schwab’s decision to make these changes put Jim McCool, executive vice president of institutional services at Schwab Advisor Services in the position of coming up with a way to replace the services that Schwab eliminated. He had to do so under the threat of a public revolt by some of Schwab’s top RIAs.

McCool has been working to solve the issue by outsourcing the custody of alternatives to a handful of trust banks, according to the company’s explanations in earlier interviews. It has yet to formally announce that program’s launch.

Advisors like Thomas C. Myers, principal with Brownson Rehmus & Foxworth, which oversees $10 billion of assets from Menlo Park, Calif., say they are satisfied that McCool has found a workable solution.

Found a way

“As much as the blame was going to fall on him, he would deserve credit for creating solutions,” he said in an earlier interview. “They worked hard and found a way not to cause problems for us.”

Update March 10, 2010: Though some advisors may have been appeased by Schwab’s new solution to alternative assets, Pershing has had success attracting RIA assets from its platform since releasing the list of nine protocols for vetting alternatives in September, Tibergien says.

“Since then, 10 Schwab advisors have opened up new relationships with us with the alternatives platform as being just one of the reasons — the other is that they wanted to diversify their custodial choices and they felt we were clearly different from the three retail-oriented firms,” he adds. “They also were drawn to our new technology, our global offering, especially around multi-currency, and the open-architecture choices around money market funds. We are actively engaged with a number of Schwab advisors for the same reasons.”

TD Ameritrade Institutional has an approach that virtually all of its RIAs appreciate, according to says Kristin Petrick, spokeswoman for the custodian

“We are flexible in our approach to onboarding nearly all categories of alternative investments, at levels found in standard asset allocation models,” she says. “We have found this to work for 99%-plus of advisors, but continue to work with advisors on a case by case basis.”

Fidelity Investments’ spokesman Steve Austin made this statement on behalf of his company: “We continue to be committed to custodying our clients’ alternative investments,” he said.

Still, Tibergein believes that Pershing has favorably differentiated its offering.

“We have a framework by which we can accept or decline, and we’re not arbitrary,” he says.

Schwab is highly deliberate in how it vets alternative investments, according to Alison Wertheim, spokeswoman for Schwab Advisor Services.

Nothing arbitrary

“There is absolutely nothing arbitrary about our asset acceptance review process,” she says. “Because we continue to custody far more alternative investments than any other custodian, we’ve made it extremely rigorous and specific.”

Schwab has about $5 billion of alternative investments, according to earlier press reports. Schwab declined to disclose any of the elements of its review process for this article.

Yet, Tibergien believes that there’s a fundamental difference in how his company treats holding alternative investments compared to its competitors.

Schwab, Fidelity and TD are essentially retail companies that accordingly take a different approach from a business-to-business company like Pershing, he says. Retail giants are generally more conscious of shielding their brands from incidents that could tarnish them.

Pershing works to minimize risk without overdoing it, according to Tibergien.

What B-to-B firms do

“We are not being risk averse,” he says. “We’re managing risk. That’s what B-to-B firms do.”

But Tibergien admits that Pershing’s vetting process can also seem difficult to some RIAs before it gets completed.

“Some advisors chafe at our processes but there’s a method to our madness,” he says. “Once you’re on board, it’s an incredible experience because you don’t have to keep troubleshooting.”

No people referenced

Mentioned in this article:

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

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