Why some RIAs are jumping through hoops to custody assets with JPMorgan

Two years after JPMorgan Chase & Co. sold its RIA servicing business to RBC Advisor Services, there are still RIAs clamoring to park their assets with the giant bank.

But RIAs who want to keep assets under custody at JPMorgan’s Broker Dealer Services unit need to jump through hoops. Unlike the other custodians, JPMorgan doesn’t offer RIA custodian services directly to RIAs. Instead, the only way RIAs can keep assets with the bank is by having a broker-dealer relationship.

Still, JPMorgan is viewed as so attractive to some clients that executives at HighTower Advisors LLC and CONCERT Wealth Management offer up J.P. Morgan’s custody services through their respective broker-dealers. Advisors of all sizes are interested in JPMorgan.Case in point on the high end is Richard Saperstein, a HighTower advisor with $9 billion in assets, who uses JPMorgan as his sole custodian. See: Rich Saperstein helps establish new strategy for HighTower Advisors as he transforms his own $ billion practice. And Myles Pritchard, a CONCERT advisor with about $100 million in assets, also uses J.P. Morgan for one of his large clients. See: Myles Pritchard thought it was better in the Bahamas and Merrill Lynch didn’t — so he left for life with CONCERT Wealth Management.

JPMorgan declines to list how many RIAs keep assets under custody there and how much in assets is involved. See: State Street’s semi-secret success in the RIA custody business.

JPMorgan offers a level of prestige to clients, says CONCERT chief executive Felipe Luna. Three his firm’s 66 advisors use JPMorgan for custody, he says.

“The major custodians are for the mass affluent,” Luna says. “The JPMorgan name is considered more elite in clients’ eyes. Advisors wanted it and in some cases they were driven by their own clients’ desire to have a company like JPMorgan. They want a name they trust.” See: The top 10 people to watch in the RIA business in 2012, Part 2.

Covering the table

Aite Group LLC research director Alois Pirker says he believes that a company such as JPMorgan clearly isn’t marketing to RIAs, but RIAs are eager to have choices for their clients’ assets. See: After trying life as two silos, the custody units of BNY Wealth Management and Pershing will largely merge.

“RIAs are funny in that sense,” he says. “They don’t want to put all of their eggs in one basket. They like to split it out. I haven’t seen JPMorgan actively pushing their custodian. Advisors are likely more interested in it for certain products that they can get at JPMorgan.”

Plum RIA unit

Felipe Luna: It’s not a custodial
relationship that I would in any
way, shape or form characterize as
traditional.

In fact, JPMorgan landed in the RIA arena almost by accident. In the middle of the market meltdown, the doomed Bear Stearns Cos. Inc. sold its remaining viable assets to the bank in March of 2008 for $236 million. JPM received a plum RIA unit, which, at the time, analysts estimated, had $50 billion in assets and some 100 RIAs.

However, in 2010, JPMorgan sold the RIA servicing business to Royal Bank of Canada and no longer provides the traditional custodian platform. But JPMorgan provides clearing and custody execution to RIAs who also have a broker-dealer relationship. See: RBC is checking every box to ensure it acquires the JPMorgan RIA unit intact.

J.P. Morgan not true RIA custodian

Craig Gordon, director of RBC Correspondent Services and Advisors Services, points out that since his firm purchased JPMorgan’s RIA unit, pure RIAs can no longer custody assets with J.P. Morgan.

He feels his firm has a leg up over a company like JPMorgan because RBC can provide custodian and clearing services to RIAs and broker dealers. A firm like J.P. Morgan can only service broker dealers or RIAs who are affiliated with broker dealers. See: RBC hires another Fidelity alumnus to boost its RIA unit’s sales.

He says the old JPMorgan RIA unit has grown since RBC purchased it two years ago and he feels that advisors who are seeking a large global wealth management firm would choose his firm over a traditional custodian. While, he acknowledges that J.P. Morgan is also a large global institution, he feels his firm has an edge because of its presence among consumers.

“We have more retail presence than JPMorgan,” he says. “We have a large retail brokerage firm. We’re the largest regional firm in the country.”

Why JPMorgan is different

For its part, JP.Morgan has made significant technology investments — starting in 2010 when the company announced it would spend $100 million over several years for its technology platform. In 2010, it launched MORCOM (MORganCOMmunications), a broker workstation and portfolio management platform. RIAs with a broker-dealer affiliate have access to this platform.

The platform was launched to allow advisors a sophisticated, multifaceted system to manage and build an advisor’s business.

“A key differentiator for our business is the significant investment JPMorgan made to enhance its broker-dealer platform, MORCOM,” says Joe Triarsi, head of broker-dealer services at the company. “Through advanced technology, MORCOM provides an advantage to the end broker and advisors around the globe, as they can access JPMorgan’s full suite of clearing and custody tools.”

In addition, Triarsi says, the company provides top services to advisors. “Core to JPMorgan’s Broker-Dealer Services business is offering a comprehensive global execution, clearing, custody and financing platform to clients,” he says.

Safety first

Saperstein, managing director and principal of HighTower’s New York-based Treasury Partners unit, has all of his firm’s $around $10 billion in assets with JPMorgan. He left the bank in 2009 to join HighTower, but is adamant about using it as a custodian for his business of managing cash for corporations.

Sapersten’s clients feel comfortable with JPMorgan as a custodian. “We wanted to keep our assets at one of the safest institutions in America and that’s we elected to partner with JPMorgan for all of our client assets,” he says. “JPMorgan works very closely with our clients to provide best-in-class service, and we’re very comfortable with the safety of the firm and having the assets there.”

Accommodation situation

Luna acknowledges that JPMorgan is not the typical custodian his advisors choose, but says it is perfect for unique situations.

The bank accepts for custody only client accounts with at least $5 million, he says. It declines to list asset requirements.

“It’s really for an accommodation situation, and the situations where we use them are very specific,” Luna says.

Besides the fact that their high-end clients crave an elite custodian, he says, advisors like JPMorgan because of its ability to handle international client accounts. They appreciate its ability to handle complicated situations where clients need more corporate services, such as public stock options, Luna says.

“It’s not a custodial relationship that I would in any way, shape or form characterize as traditional, but it does allow us to accommodate some of those business opportunities that are very attractive and don’t fall in the sweet spot for traditional custodians,” he says.