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TD, Fidelity and Schwab get green light to custody assets of advisors who use National Advisors Trust

Fido and TD Ameritrade are on board with the RIA-owned custodian and trust company but Schwab is still weighing its options

Thursday, August 23, 2012 – 3:37 AM by Lisa Shidler
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Ron Ferguson: We won't lose.

Brooke’s Note: Perhaps the coolest thing about National Advisors Trust is that it is the only “custodian” owned by RIAs. And membership has its privileges — namely very low rates for trust assets. But it turns out ownership has another benefit — farsightedness. Here are advisors who spent tens of thousands to be part of a club, NAT, advocating that other RIAs be allowed into the club, for a very minor fee. Why? Self-interest. They are owners and they understand that growth and scale are more important than breathing the rarefied air of exclusivity.

National Advisors Trust has dramatically changed its business model and is now letting advisors keep assets under custody with TD Ameritrade, Fidelity and, in the near future, Schwab.

In the past, the Overland Park, Kan.-based firm has required its advisors to keep assets under custody in-house. But bowing to demand from shareholder advisors, it has added the technology to accommodate three of the major custodians. Now, advisors can use trust administrative services from National Advisors Trust without keeping assets there, but at a higher cost — an additional 5 to 10 basis points. Shareholder advisors will continue to pay slightly less than other advisors who aren’t shareholders on their administrative services and that will continue even if they keep assets elsewhere, says chief executive Ron Ferguson.

NAT has about 138 shareholder advisory firms that manage more than $100 billion in total assets, but it provides custody for only $7.8 billion in assets. The company added more than $520 million in net new assets as of Aug. 22. See: National Advisors Trust gets busy Northern Trust-ifying the RIA business, minus the big fees.

Fresh air

The move shows a desire for growth on the administrative end of the 11-year-old firm, says Ferguson.

“We provide a lot of services, such as custodying assets, but we’d like to administer more trusts. We want to grow the trust side of our business and this opens up a window to build out our trust administrative services. “We had demand from our shareholder advisors who wanted to custody assets at places such as Fidelity and Schwab,” he added. “Our existing shareholder advisors came to us. We’ve had this demand for a long time.”

In the last few months, the company has begun offering services available on the platforms of Fidelity and TD Ameritrade. Trust administration services will be available through Schwab starting in the fourth quarter, according to NAT, but Schwab officials say that no deal has been reached just yet. NAT announced these deals on Monday.

Schwab on deck

Even though NAT will allow advisors to custody with Schwab this partnership hasn’t been ironed out yet, says Schwab spokeswoman Susan Forman. “We are in early discussions about enabling trust administration services for NAT on our platform,” she says. “This is something we do with a number of trust companies and banks and it enables advisors to have a choice of trustee for end-client accounts.”

Forman adds that the company wants to offer choice to its advisors. “Trust administration services are only one of the many trust services we offer,” she says. “There is no advantage to advisors using another trust company or bank over Schwab other than offering clients a choice of trust administrator.”

Added costs

NAT spent the last year making operational changes so that it can translate files from custodians into trust transactions.

Trust transactions require different reporting systems than brokerage accounts. For instance, with trusts, the administrator must track income and principal, and NAT has developed systems enabling it to translate the standard custodial files into trust files.

Ferguson explains that his company is charging the higher fee for advisers it allows to keep assets under custody elsewhere because it has to complete extra work. He says the discount for shareholders varies. While he declines to list the specific parameters, he says the discounts can be close to 5 basis points.

Fidelity for a long time

Fidelity and NAT have had a long-standing relationship, and for the past eight years, NAT has cleared through the custodian’s National Financial Services LLC subsidiary, Ferguson explains.

“Fidelity has had a collaborative relationship with National Advisors Trust for nearly a decade, making their services available to advisors who use our trust services platform,” says spokesman Stephen Austin.

Even though Fidelity offers its own trust services for its advisors, Austin adds that the company wants to give its advisors options.

“These advisors value choice. and we believe that this longstanding relationship gives them that choice. For instance, NAT’s services can be valuable in cases where Fidelity is not able to provide for some of an advisor’s specific trust needs.” See: By hiring a Fidelity sales veteran, National Advisors Trust goes after the $1 million to $10 million client who use $500 million RIAs.

Unorthodox assets

In fact, Ferguson says he believes his company will still be a preferred custodian for nonstandard assets. For instance, some trusts include real estate, and custodians typically don’t allow such assets to be held in their trusts. See: The 30-day alternative assets challenge: Finding the right successor custodian.

“I don’t know any custodian who will hold someone’s house in a trust,” Ferguson says. “But we will hold those types of assets in our trusts.”

“Shareholders will get a better deal all the way across all of our services — on- or off-platform,” Ferguson says. See: Schwab wins long-awaited green light from the SEC on alternative-assets distribution.

No loss

Ferguson is not worried about losing assets because advisors may choose to keep assets under custody with one of the other firms.

“We won’t lose. We’re not losing anything,” he says. “We’re trying to grow our trust business. We provide custody as well, but we specialize in trusts, and that’s the business we want to grow. We have an advantage because we can split the custody between ourselves and a custodian,” he says. “We do have an edge because we’re able to be more flexible in the type of assets we hold. If you have a trust with one of the major custodians, they have a smaller box where they can fit things. Our box is much bigger and more flexible.” See: By hiring a Fidelity sales veteran, National Advisors Trust goes after the $1 million to $10 million client who use $500 million RIAs.

New services for TD

TD does not have a proprietary corporate trustee service offering, says spokeswoman Beth Evegan. The company offers access to a network of RIA-focused third-party providers — including Advisory Trust Company of Delaware, Reliance Trust, South Dakota Trust and Santa Fe Trust Co. “We are an open-architecture platform, and the decision to work with NAT was driven by advisor demand,” she says.

“TDA works with third-party trust companies that are focused on the needs of the RIA channel. We are happy to offer choice to our RIA clients,” she says.

Private label

In addition to providing an operational advantage, those RIAs leveraging National Advisors Trust’s unique private-label trust program will be able to extend their brand to the trust accounts held on other custody platforms.

“Private-label branding for trust accounts across multiple custody platforms was another key to making this strategy work well for our affiliated RIAs,” adds Ferguson.

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Mentioned in this article:

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

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

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