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A peek inside the rising RIA custodians fighting to overtake the Big Four

RBC, LPL, TCoA, Scottrade and National Advisors Trust are all pushing to gain the critical mass to get past also-ran status

Author Lisa Shidler
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Catie Tobin: RBC intends to double its RIA assets from $10 billion to $20 billion by 2015.

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Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Dan Arnold

Raymond James Financial Inc.
Asset Custodian
Top Executive: Bill Van Law

Scottrade Advisor Services
Asset Custodian
Top Executive: Brian Stimpfl

Folio Institutional
Asset Custodian
Top Executive: Greg Vigrass

National Advisors Trust Company
Trust Company
Top Executive: James A. Combs, Jr.

The Ensemble Practice LLC
Consulting Firm
Top Executive: Philip Palaveev

Doug Lawson

Doug Lawson

November 29, 2011 — 4:59 PM

Custody is no longer a passive decision. This article only begins to tip the scale as it relates to this marketplace. Small Custodians add an extremely high level of value to the RIA space. Additionally, Sub Custodians are a positive trend. A Sub Custodian can add the opportunity to hold true Alternative Assets that traditional custody relationship won’t. Alternative Assets held at a Custodian that understands them is a major benefit when you are advising a client, especially sophisticated investors with a desire to diversify their portfolio.

Elmer Rich III

Elmer Rich III

November 29, 2011 — 5:37 PM

As asset gathering-oriented and new distribution-focused marketers, we have championed custody as a key business builder and differentiator for asset gathers for over a decade. One that has been largely ignored.

Most of our work is proprietary for clients but some ideas include:

- Custody is an untapped source of savings, inefficiencies and back room processes optimization. This is critical in a more fee sensitive environment.

- It is the main indirect touch-point for all clients, with reports and online sites being the main place the advisor’s brand is carried.

- Any and all technological innovations first come thru the custodial services – along with regulatory and compliance. Post-Madoff, the regulatory demands on custody are rising exponentially.

- Perhaps, most importantly, each advisor relationship is a hub for direct access to all the clients and assets for additional products and services. There seems to be no better way to build distribution to AUM.

Yet generic and “big box” custody solutions are the norm and dominate market share. That may change, but the momentum is (always) with the status quo. Rightfully so, advisors are very cautious about moving client’s money or where it is safe-kept.

Regarding the statement “They can achieve critical mass quickly.” — we would love to hear examples or see data supporting this observation. In terms, of market share that seems very challenging, however, in terms of scale that may be less difficult.

And, in fact, the “big box” providers are acquiring “best of breed” “bolt-on” solutions and specialty products/companies at an increasing rate; raising the bar all the time for new entrants. Again, technology is key and technology is highly scaleable. Whoever has the biggest budgets wins.

In some ways the custody market is mature but also “resetting” due to Madoff and technology, etc. Still, gaining or taking over market share is always expensive. Pretty much everyone has the same hungry sales people/senior leaders/Boards asking for bigger numbers. Technology seems to follow the biggest budgets.

Since everyone, as in this article, is working as hard and fast as they can, even outsmarting competitors in this space is hard. We know. We make a living doing it.

Finally, on an encouraging note, all markets divide into new segments or niches as they grow and mature and, no doubt, the advisory business is evolving into more specialized practices and “suites” of custodial needs. Again, data would be good to see. Certainly with higher volatility and lower returns it is harder to differentiate oneself with investment performance alone anymore.

Sandra Reese

Sandra Reese

November 29, 2011 — 10:38 PM

Specialized custodians are meeting a specific need when it comes to the custody of non-publicly traded assets, also known as alternative assets. Many traditional custodians are becoming more selective in their accommodation of investor’s unique assets and over the past two years have been seeking out the services of specialized custodians who understand the nuances of alternative assets. Regulatory changes are also creating new opportunities for these specialists to provide qualified custodian services to RIAs and advisors to private funds. There are advantages of working with a mid-sized and specialized custodian including a willingness to work with smaller advisory firms and funds, agility and attractive pricing.

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