Pershing rolls out new RIA custody fee schedule for firms from zero to $10 billion in assets - a dynamic of competing against zero-fee custodians who take revenues from client accounts

BNY Pershing is tentatively rolling out a new set of RIA custody fees to a market where most RIAs have no idea how much they currently pay and are fighting margin compression.

The Jersey City, NJ, clearing and custody company's asset-based fees schedule ranges from five basis points on the first $500 million of assets under management to one basis point for AUM that surpasses $10 billion.

RIA custody fees could technically range up to $475,000 for a $1 billion AUM RIA based on that schedule.

But any amount could hurt, says Stephen Caruso, wealth management associate director at Cerulli.

“Pershing then becomes a cost layer for these RIAs, and that becomes a little bit more challenging -- if previously your relationship with your custodian was relatively low cost.”

RIAs will have no choice but to accept the fees and what exactly precipitated the change.

Increasing transparency

Pershing declined to be interviewed and acknowledged the new fees only after they were leaked to Citywire and published in a June 4 article.

The item refers to the price list as “new,” effective July1, but Pershing played down the significance by emphasizing that it already levies RIA custody fees.

“We’re making several changes to increase transparency and simplify how our clients work with us,” it says.  

The comment is an almost verbatim reiteration of  quotes Ben Harrison, head of Pershing RIAs, provided for a 2020 RIABiz article. See:  Fidelity Investments will broaden custody fees in July, while Schwab counters with pledge: ‘No custody fees and no intention to raise them’

“Pershing offers asset-based pricing and has offered it for some time," he told RIABiz. 

"It’s one of the options available on our platform, as we do not believe in a one-size-fits-all approach when it comes to addressing our clients’ complex needs.

"Our pricing strategy is designed to offer growth-minded RIAs choice and transparency, further aligning our business with the value we deliver to fiduciary advisors.”

Payment mystery

Regardless, the very fact that a Big Three RIA custodian is pressing ahead with fees – in a world where the No.1 custodian, The Charles Schwab Corp., has pledged to never levy them – is eye-opening, Caruso says.

“Generally speaking, RIAs don't really know how they pay for custody,” he says. “One of the core parts of our research that came out a couple of years ago around custodians is RIAs aren't sure if it's coming from their end.”

Yet, the new fees will be felt mostly by one RIA sub-segment – new ones.

“(The new fee schedule) is going to have more impact on those RIAs that aren’t currently on a fee schedule,” says Andrew Besheer, principal at Besheer & Associates.

“Pershing already charges RIA’s fees. This just codifies them and – to my mind – makes them more transparent. Nothing in life is free.”

Service costs

But Pershing will be careful about how it applies the fees, according to Caruso.

“Roughly 93% of RIAs are under a billion dollars in AUM,” he says. 

“So it's huge market. And, or it's a huge component of the market. So I think Pershing still wants to work with those RIAs.” 

Though the new fees add transparency, Pershing has not said that it will subtract revenues currently derived from RIA relationships – like sweep accounts or mutual fund platform fees.

Besheer adds: "Whether RIAs pay [Pershing] through custody fees, cash sweep rates, tech or platform fees, etc., there’s a cost to the services that they get. 

"Pershing – and for that matter, any other institution in the custody business – is providing those services to make a profit.

"Existing RIAs may not see moving to avoid fees as a viable option," he adds.

“Could an RIA potentially find a custodian with a lower-priced offering and move, sure…but for the actual and opportunity costs involved in making that custodian change, I just wonder how many will…my suspicion is that it’ll be de minimus.”

Shared dilemma

Pershing allows that RIA clients themselves prompted some of the mechanics of the new pricing system.

“We conducted a review of how we do business with our clients, including reflecting on their feedback. We’re making several changes to increase transparency and simplify how our clients work with us,” the company said. 

Altruist CEO Jason Wenk says all custodians face similar pricing dilemmas based on how an RIA invests.

“A lot of this will depend on how advisors manage money for their clients,” he says. “For example, if an advisor holds, effectively, no cash sweep balance and uses all mutual funds that pay no fees to the custodian, the custodian earns nearly no revenue. 

"It's impossible to stay in business in cases like this, and there's a non-trivial number of firms that make it hard for any custodian to even break even on serving them.

“Pershing, specifically, has a unique niche in the RIA market,” he adds.

“They primarily serve the corporate RIAs of broker/dealers, which has very little competition. Direct RIA relationships are less common, but they do exist, and it tends to be for firms serving HNW and UHNW clients – even some family offices. While there are a lot of dollars in these markets, there aren't a lot of firms, so I suspect adding new customers won't change much.”

Pricing leverage

Pershing serves 205 broker-dealers, including: Osaic, Cetera and Cambidge Investment Research, and many of them have corporate RIA custody relationships with Pershing.

“When it comes to fees and pricing, all meaningful custodian relationships are negotiated in some form or fashion,” says Tim Welsh, president and founder of Nexus Strategy, a leading consulting firm for the wealth management industry.

"For the larger RIAs who have AUM leverage, they can customize pricing that works for them," he adds.

Caruso expects that if Pershing is applying new fees to RIAs that it will also “drive value” i.e. provide something new that RIAs want. 

One example, he says, is that Pershing is on the verge of launching a referral network from its bank.

“I think Pershing is kind of on the cusp of launching a referral program, is really considering launching a referral program, and that's where we'll see some kind of deeper impact in addition to this new pricing offering as well.”