From Technology to Operations, Best Practices for Going Multi-Custodial

James Miller, Contributing Editor, Wealth Solutions Report

Going Multi-Custodial Requires Considerable Planning, But Benefits Can Include Easier Recruiting and M&A Growth, Plus Enhanced Advisor and Client Service

From independent broker-dealers with their own RIA platform, to stand-alone hybrid RIA and fee-only RIA firms, the wealth management space seems to be increasingly in consensus on this much:  There are greater strategic benefits associated with a multi-custodial approach versus staying single custody.

WSJ Reader Survey Results – Future of Custody

It’s a perspective underscored by the results of our latest WSR Reader Survey about the future of multi-custody versus single custody trends, revealing the following industry sentiments:

  • 67% of respondents agree or strongly agree that wealth management firms that have custodial relationships with two or more providers are better positioned for growth
  • 74% of respondents agree or strongly agree that firms with one custodial relationship should “seriously explore adding at least one additional custodian” over the next 12-24 months

But when we dive deeper into the survey results, things get a bit more interesting:

  • 85% of respondents agree or strongly agree that a single custody model reduces operational, administrative and compliance complexities
  • 63% of firms that are currently multi-custodial agree or strongly agree that they should have made “significantly different decisions” on the resources and tools they put in place when they first transitioned from single custody to multi-custody

Your Current and Future Business Model

So how should firms and their financial advisors best think about the future of custody with respect to their own businesses?

Hank Multala, President, Adviser First Partners

For Hank Multala, President of Adviser First Partners, it all comes down to the wealth management firm’s current and projected business model.

Multala, whose business uses weighted compatibility standards built by psychologists to match financial advisors with firms and institutions, said, “Consider existing and near-term assets and how you’ll meet the custodial requirements.”

“For example, is your business model focused on the ultra-high net worth or institutional space?  And will you need solutions for non-traditional assets, trust work, or perhaps lending or global banking?”

According to Multala, asking these types of questions up front is crucial to heading off potential problems before they occur with any multi-custody strategy.

It’s All About Data

Your strategy defines your business.

Multiple industry consultants interviewed for this article referenced data automation as one of the single most important determinants of success – or failure – for a firm’s multi-custody strategy.

While the greater flexibility, choice and solutions that are theoretically offered by access to more than one custodian can be alluring, these advantages are diluted if advisors and clients are forced to jump from one custodial platform to another for financial reporting and other basic data needs.

David Knoch,
CEO, Docupace

David Knoch, CEO of Docupace, a provider of cloud-based fintech digital operations for the wealth management space, emphasizes the following five “must have” data automation tools and resources for firms planning to go multi-custody:

  1. A consistent way to gather client data
  2. Data aggregation
  3. Universal new account opening platform
  4. Singular activity and trade surveillance platform
  5. Integrated workflow and document management

According to Knoch, “In the past, multi-custody RIAs had no choice but to use multiple custodial new account opening platforms, each with different rules, requirements and paperwork.  There’s no reason why RIAs, their financial advisors and the clients they serve should have to deal this level of complexity in this day and age.”

Knoch, whose firm recently acquired both PreciseFP – an account onboarding solutions provider for the RIA space – as well as jaccomo, which offers a post-trade surveillance platform among other services, believes a consolidated and streamlined data experience will directly drive the success of a multi-custody strategy.

“The decision to go multi-custodial for an RIA ideally is driven by a desire to create a better service experience for the client.”

“If going multi-custodial results in a service experience that is all over the map in terms of how client data is collected, presented and used, then you’ve already failed to deliver on a key strategic goal.”

Compliance Automation

Compliance is an obligation. Excellence is a choice.

While streamlined and simplified data workflows across the board are key, compliance issues tend to have outsized potential for tripping up firms that go multi-custodial.

More custodial relationships inherently create more disclosures, more paperwork and more regulatory tasks.

Increasingly, multi-custodial wealth management firms are opting to leverage compliance workflow automation technologies rather than take the more costly route of simply hiring more compliance personnel.

Mike Overdorf, Founder & President, The Sycamore Company

The Sycamore Company is a cloud-based, fintech firm that helps independent broker-dealers and RIAs increase the efficiency of their operations workflows and reduce compliance and regulatory risk, in large part through its compliance workflow automation tools.

According to Mike Overdorf, Founder and President of Sycamore, “Independent wealth management firms operate in a space where there is a unique intersection of compliance, regulatory and data complexity.”

“Firms that are transitioning from single-custody to multi-custody need to have an actionable plan to address the additional operational, administrative and regulatory obligations that are inevitably part of each new custodial relationship.”

For example, wealth management firms going multi-custodial must put in place compliance workflow automation processes that can aggregate and normalize data from several sources in one database.

Additionally, Overdorf emphasizes the importance of leveraging compliance workflow solutions that can ensure fees are aligned with activities, provide surveillance on the suitability of investments, investment tolerance and risk tolerance vis-à-vis client portfolios.

“It’s easy to make the argument that the proliferation over the past decade of third-party asset managers and vendors for independent wealth management firms has been a good thing for our industry overall.

“But this is only the case if wealth management firms are able to engage with these solutions in a fully compliant way, and without having to hire entire new departments of compliance and due diligence professionals just to be able to leverage these services.

Mike Nessim,
CEO, Kingswood US

Multi-Custody Drives Easier FA Recruiting, M&A Growth

For Mike Nessim, CEO of Kingswood US, a New York City-based network of national wealth management firms with over $2.5 billion in assets, going multi-custodial should be driven by your current scale and future growth goals.

According to Nessim, having multiple custodian relationships provides a larger net for capturing advisor recruits.

Driving business growth through Mergers & Acquisitions.

“Some recruits are very tied down to certain custodians, so if you have their particular firm on your platform, it can make transition much easier for the advisor when it comes to that point.”

Being multi-custodial, in Nessim’s opinion, also broadens recruiting reach in that wealth management firms can drive advisor recruit referrals from more than one custodian.

Beyond recruiting, advisor service and client service, another reason for going multi-custodial is to drive more seamless M&A opportunities.

Hank Multala of Adviser First Partners said, “If acquiring additional businesses is one of your objectives, having several custodial solutions allows for a much simpler transition and integration of these businesses within your firm.”

It’s a perspective shared by Nessim.  

“For Kingswood US, because we’re in acquisition mode for smaller firms, having multiple custodial relationships is amazing in terms of being able to offer sellers what they’re looking for in a buyer.”

“If you’re a company that’s happy where you are, you don’t want to grow and you’re happy running your business the way you have been running it, there would be no reason to go multi-custodial, as supporting more than one custodian relationship can get very complicated.”

“But if you’re in growth mode, you should consider it.”

James Miller, Contributing Editor & Research Analyst, can be reached at

Related Posts

Sign Up for Our Newsletters

Sign Up for Our Newsletters