Altruist drops news on former SSG RIAs -- they must leave Pershing by November for Altruist or third-party custody, catching many by surprise
The Culver City, Calif. custodian called a town hall after negotiations with Pershing fell flat and gamely admits this was not the 'original intent'
9 min read- Altruist mandates former SSG RIAs to exit Pershing custody by November.
- Advisors express concerns over Altruist's platform limitations compared to Pershing.
- Pershing's refusal to allow phased transitions forced Altruist's all-or-nothing approach.
Brooke's Note: This article was reported on deadline, hence we didn't get all answers before publication. Today, Altruist CEO Jason Wenk assiduously answered all our questions and we added them in a sidebar below.
Altruist has told thousands of RIAs they have roughly 60 days to move their assets from long-time custodian Pershing to in-house custody or a third party.
The announcement at a town hall meeting, Monday (Aug. 5), was a shock to some 2,000 advisors who are affected by the move. Altruist picked them up with its acquisition of San Diego custodian Shareholders Service Group (SSG) in March last year.
“Unfortunately, clients cannot stay at Pershing," said Altruist Founder & CEO Jason Wenk at the meeting.
Altruist sent an email to clients obtained by RIABiz that explained RIAs will be switched to Altruist from Pershing by “negative consent,” if necessary.
In other words, if advisors and clients do nothing, accounts will automatically move from Pershing to Altruist.
"A lot of people will ask, ‘What if I don’t want to move? ‘ What if my client doesn’t want to move and just wants to keep everything exactly as it is?’ Pershing will not [allow it] — and I shouldn’t blame it all on Pershing.
“This is Pershing, DTCC (Depository Trust and Clearing Corp.) and FINRA,” Wenk said. See: With Vanguard and Venrock as backers, Altruist is taking careful aim at RIA custody power, with SSG a big building block and an even bigger sign
The accounts will move from Pershing during the first weekend in November.
Pershing did not reply to an email seeking comment. Ben Harrison, Pershing head of RIA custody, also did not respond to a request for comment.
Technical issues
An RIA who reached out to RIABiz says the move put his firm in jeopardy because Altruist custody – though silkier digitally – simply is not as developed as Pershing.
There are concerns in terms of bread-and-butter and things like alternatives, automating withdrawals, bank links, margin accounts, options trading and other items such as 529 accounts.
The RIA says he was confused by the explanation Wenk gave in the meeting – citing technical issues regarding a gradual or all-at-once transition Pershing.
SSG did not own its own clearing and custody machinery and negotiated a master agreement with Pershing that was due to renew in December.
"This is something that, again, was never our original intent.” Wenk said.
“They [Pershing] were not going to be willing to support any type of opt-in, over multiple tranches, it was going to be exclusively an all or nothing conversion,” Wenk explained at the town hall.
Jason Wenk raises $50 million from Vanguard Group and others, and Altruist may soon overtake Pershing's No. 3 RIA custodian spot, the Altruist founder asserts
“One of the things that we wanted to be able to make available was a series of tranches, if you will," Wenk explained.
"The idea was…we'd like to do three different tranches to allow advisors to opt in, essentially. After months of negotiating, we got basically told from Pershing that it would not be possible.”
Making the move
Jason Wenk Responds to the Move 1) We intended to always have a long-term relationship with Pershing for the purpose of serving clients there when it made more sense. However, the No. 1 question and request we received from SSG advisors was, 'Will there, or when will there, be an easy way to automatically move all my clients to Altruist?". We tried to work with Pershing to get a few bulk conversion windows available, and they let us know the only way they could support a bulk conversion would be by doing a single conversion. When we approached our compliance team and external counsel about coordinating this, they let us know we could not do it selectively, it would require all eligible accounts [to] transfer. So, we basically had 2 options: 1) Leave every account at Pershing indefinitely unless advisors wanted to move one at a time to Altruist (which many were doing); or, 2) Move all eligible accounts. When looking at what created the best outcomes for clients and advisors, it was apparent option two was definitely better. Advisors could move in bulk with no paperwork (or one-at-a-time digital account openings), clients with eligible accounts would be better off (lower fees, no commissions on most securities, fractional shares, higher yields on cash, robust model portfolio access, and more). 2) If there is an account type or service we don't offer, those accounts will stay at Pershing and nothing will change for the advisor or client. This is likely to be less than 10% of accounts, perhaps less than 5%, as we now have near full parity with Pershing (and others such as Schwab and Fidelity). 3) Our original ask was to offer opt-in bulk transfers over the next 18 months, where advisors had full control, if they wanted to move to Altruist. It's a lot of work for a contra firm to do this, so I completely understand why Pershing was unable to agree, but that was our first option. 4) We are a full self-clearing custodian, Altruist Financial LLC. We moved to self-clearing early last year and moved all accounts from Apex to our in-house custody platform. 5.) We were somewhat surprised, but always knew there was a chance Pershing wouldn't desire the same optionality we did. 6.) I suspect nearly all advisors will stay. Of the ~2,000 at SSG we've heard mostly a great deal of excitement, as this makes the transition incredibly easy for them and their clients. Only a few firms have expressed disappointment, but for those it was mostly around not having more notice. 7.) Because Pershing charged commissions for equities and many mutual funds, many advisors were absorbing those charges on client's behalf. Many advisors were also spending substantial amounts of time to do things like rebalance portfolios or perform fee billing; or paying for external tools for those functions. At Altruist all of that (and more) are free, so advisors will save significant time and money. |
Now, Wenk said accounts that Altruist supports will be moved. “No eligible account can stay at Pershing,” he said.
Even if a client had a direct relationship with Pershing, the client will still have to open a new account.
“There’s no way to keep things exactly as they are. I want to be super clear about that.”
But accounts that Altruist doesn’t support won’t move to Altruist – such as 529 college savings plans and solo 401(k) plans with loans,” he explained.
Clients will get letters about the negative consent, and he urged advisors to explain to clients what it means. He says his firm has already completed one mock-transition and will complete another one.
That being said, there are still some really nice benefits to the bulk conversion," he noted.
Protecting clients
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In an explanation email to advisors, Altruist spelled out those advantages.
"For you and your clients, this means lower fees, less paperwork, faster service, more robust security, higher yields on cash, and a custody experience that is modern, intuitive, and easy to use,” the company stated.
For example, Wenk says that Altruist has better pricing than Pershing. And, he maintains that clients will like Altruist's platform and ease of use.
“The client won't see anything. If they have a fear, they should not fear, ‘Is my money safe?’ It will absolutely be safe.
And [we will] arm you with all of those kinds of resources to make sure you can have that great conversation with clients, because this should be something that's a net positive," Wenk added.
With Vanguard and Venrock as backers, Altruist is taking careful aim at RIA custody power, with SSG a big building block and an even bigger sign
No client left behind
Wenk pointed out that the process was set up by FINRA rules.
"By the way that they do this, every eligible account, you can't do discriminatory leave-behinds, if you will.
“So, no account can stay at Pershing. You'd either have to find a new custodian prior to the conversion date… or you'd have to have a direct relationship with a new custodian and move the account.”
However, he added that any account that Altruist doesn't provide such as 529 plans will remain at Pershing.
“Even if you had a direct relationship with Pershing, for example, you'd still have to open a new account, do an ACAT, do all of the paperwork. There's no way to keep things exactly as they are.”
But Wenk assured that no client will be left in the lurch – even if Altruist can't replicate a NetX360 Pershing capability immediately.
"Many of these things will be coming really soon this quarter and then some in Q4, with the goal being to have almost entire parity, if you will, with account types and key features that people are using today on Pershing.
"That being said, again, there will likely be some, I think we've identified… a subset of account types and maybe again, some limited security types or services, that we do not support or can't support.
“So if you're in that position, don't worry, you won't lose your client. Your client will always be okay. In the event that they need to stay behind, you'll just be able to see all of your accounts on the Altruist platform and still get your service through a single source.
"We'll be serving accounts across both platforms.”
Expanding services
Wenk says he's comfortable with these conversions. His firm and Pershing have already completed a mock conversion and will complete another one, he said.
“Until we actually go through successful mock conversions, you can't just pick a date and go with it. So you do have to actually have all those mock conversions done and have them be successful to kind of [set] a date in line.
"So this is really the earliest only in the last couple of weeks,” Wenk said.
Wenk maintained that his firm will continue to bolster its tech.
“We actually have over 70 percent of you that have accounts on Altruist, that have been using it and giving us feedback and doing a deeper dive,” Wenk said on the call.
“Having a couple thousand advisors that are direct on Altruist before the combining of SSG and Altruist, these advisors are constantly challenging us to get better and add new features and new integrations.”
He says margin and options trading will likely be available next year. “There will be other options that will come in likely this year to support a bunch of integrations,” Wenk added.
By the numbers
Altruist reported a 550% increase in revenues in the past year -- although not all organic -- and tripling assets under management for two consecutive years.
Pershing is still No. 3 by the metric that counts the most - assets under custody - with a few hundred billion. See: Jason Wenk raises $50 million from Vanguard Group and others, and Altruist may soon overtake Pershing's No. 3 RIA custodian spot, the Altruist founder asserts
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