For IBDs, RIAs and Independent FAs, Utilizing a Single Custodian Can Drive a Superior Operating and Service Experience
Offering financial advisors access to multiple custodial service providers has become a popular box for broker-dealers and wealth management firms to check in their recruiting pitches in recent years.
On one level, it seems to make sense – more choice means more flexibility, right?
But as Marie Kondo points out, though, “more” doesn’t always equal “better.”
Sure, having access to a range of custodial options can create some benefits for financial advisors transitioning to a new firm – many of which revolve around avoiding ‘re-papering’ for clients.
But the fact is that broker-dealers and other wealth management firms utilizing a single custodian can often offer advantages that are even more effective in spurring business growth for financial advisors.
Consider the Facts
Here are some factors for financial advisors to consider when assessing whether the multi-custodial approach will actually add value for them – or whether it just amounts to unnecessary clutter:
- A custodial platform is like any other tool: The more you use it, the more proficient you become. When advisors encounter a problem with a custodian’s platform – whether it’s a technology issue, an error with client statements, or any number of other things – they don’t care whether their firm offers a multi-custodial approach; they just want their problems fixed as soon as possible.
Firms that don’t divide their training time and service personnel between multiple custodial platforms are in the best position to go beyond basic familiarity with a custodian’s systems to develop true mastery. They will not only be better able to rapidly diagnose an advisor’s problem and identify solutions, but – if the issue requires support from the custodian itself – they will also be able to leverage their longstanding relationships and superior organizational knowledge to more readily connect with the right people within the custodian’s corporate structure to solve the problem.
Over a few years, the mastery of a custodian’s platform and in-depth organizational familiarity that come with a single-custodian approach can add up to significant savings in both time and potential frustration for advisors.
- The opportunity cost of adding a custodian may be higher than you realize. In general, it takes about a year for a broker-dealer or wealth management firm to reach a reasonable level of operating proficiency with a new custodial platform. However, this one-year timeframe assumes that the firm will invest in the right resources within their own organization to support the platform – potentially including new dedicated personnel, ancillary technology systems and reworked support processes, to name a few.
Meanwhile, advisors who don’t utilize the new custodian’s platform will see zero benefit from all this investment.
In fact, these advisors will incur significant opportunity costs, since every dollar their broker-dealer or wealth management firm devotes to supporting the new custodian is a dollar that cannot be deployed toward improving firmwide technology, developing turnkey marketing offerings, expanding practice management and training resources or adding other tools to help accelerate growth for all of the firm’s advisors.
Financial advisors considering a transition to a multi-custodial broker-dealer or wealth management firm should bear in mind, then, that just because they may not use a particular platform at the new firm doesn’t mean that platform won’t impact their business.
- Functionality on the major custodial platforms has converged in today’s competitive environment. The largest custodians in our industry today have become keenly aware of the features advisors need in order to serve their clients while growing their businesses in the way they envision. As a result, advisors who switch from one custodian to another will almost always be able to find the same functionality on the new platform with relative ease.
With this in mind, broker-dealers and other firms who offer a multi-custodial approach are, in fact, paying a steep premium for a negligible increase in the flexibility they offer advisors. Unfortunately, this premium is often passed on to clients in the form of higher pricing or a lack of other value-added services or platforms.
To be sure, transition-driven changes to an advisor’s practice can create significant hidden costs when the advisor moves to a new firm, regardless of the size of the upfront recruiting check or the level of transition assistance they receive. Fortunately, in today’s market – where the vast majority of custodians’ service offerings and functionality has become standardized across the industry – such lasting changes rarely happen as a result of switching custodians.
Don’t Sacrifice Depth for Breadth
As broker-dealers and other wealth management firms continue to work to differentiate themselves in the recruiting wars, the multi-custodial service platform has caught on as a popular signifier for a commitment to advisor flexibility.
When you de-clutter the picture a bit, however, it becomes clear that multi-custodial models may simply be sacrificing depth for breadth.
The elements of a firm’s platform that truly ‘spark joy’ in advisors – responsiveness, the ability to quickly and sure-handedly resolve problems, and continued investment in advisor growth platforms – are actually more easily found through a single-custodian approach.
Mark Contey is Chief Business Development Officer for LaSalle St., a family of wealth management firms that includes an independent broker/dealer and an SEC-registered investment advisor. The firm supports approximately 300 independent financial advisors across the country, with total client assets of over $12 billion.