Hybrid RIA Roundtable: Multi-Custody Versus Single Custody? Pros and Cons Abound!

Hybrid RIA Leaders Discuss the Benefits and Drawbacks of Going Multi-Custodial Versus Sticking with One Custodial Relationship

I’m thrilled to welcome our WSR community members to Wealth Solutions Report’s inaugural Hybrid RIA Roundtable!

Flexibility is not just for yoga classes. It can also come from having access to more than one custodian.

Each month, we’ll bring together senior leaders of firms from across the industry that support independent financial advisors who want to own their books of business while being part of a broader group of professionals who can deliver both fee-based and commissionable business.

Without question, the hybrid RIA segment of firms continues to be one of the fastest-growing areas of the wealth management space, offering a unique level of flexibility and service to independent financial advisors.

This is especially the case for financial advisors who see the benefits of aligning with a larger IBD / corporate RIA, but who are worried about not being sufficiently seen or heard if they’re not part of a broader group of professionals.

This Week’s Roundtable Question

The term “multi-custodial” – having more than just one custodial firm to support fee-based advisory work – has been thrown around quite a bit over the past five years.

Increasingly, the assumption among many firms and financial advisors is that being multi-custodial, versus having just one custodial relationship, is the best possible approach for driving superior client service and greater business value creation opportunities.

But is this actually the case?

Put more directly:  What are the pros and cons of having a multi-custodial RIA versus an RIA that has a custodial relationship with just one of the major custody firms?

The question of working with a single custodial firm or having multiple custodian relationships is one that isn’t as straightforward for RIA leaders to answer as one might think.

There’s really no one option that will suit every RIA, and it’s up to leaders to dig deep on the nuances of each model to see which one best fits the way their firms do business.

November’s Roundtable Participants

That’s why I’ve invited the following leaders of three fast-growing hybrid RIA firms to analyze the dynamics of both single- and multi-custodian models…and provide their best thinking on why firms and financial advisors should consider when it comes to multi-custody versus single custody relationships:

  • Atlanta, Georgia-headquartered Nathan Stibbs, President & Chief Strategy Officer, Continuum Advisory, LLC, a hybrid RIA firm with 25 financial advisors and $3 billion in client assets
  • Art Cooper, Managing Director at Irvine, California-based Cooper McManus Wealth Management, an independent hybrid RIA that encompasses 51 financial advisors across the country, and nearly $1.6 billion in assets

Paul Vladem, President – Associated Financial Consultants & Investor Services

Paul Vladem, President, Associated Financial Consultants & Investor Services

When you have a deep relationship with one, go-to custodian, the benefits are powerful. That’s not to say I would advise putting all of your eggs in one basket with a single custodian. Having an alternative option is certainly important.

For our firm, we look at our go-to custodial relationship as an expansive partnership – going well beyond simply trade execution, clearing and custody. We want a relationship that goes beyond the norm as a strategic partner in areas like technology, integration, report management and ease of use.

The competitive advantage of a corporate RIA through an independent broker-dealer provides economies of scale with those relationships. Securities America and Advisor Group have teamed up with Envestnet and National Financial Services (a wholly owned subsidiary of Fidelity) through a platform called Managed Opportunities. 

The platform gives us low account fees and scale with the ability to access an array of managers, ease with advisor managed portfolios and robust technology. It’s fully integrated on a single platform with access to a full spectrum of financial analysis and performance information.

Because our staff and advisors are extremely comfortable with the go-to platform, we have the ability to eliminate a lot of the complexity of jumping platform to platform. Our staff is trained, has the resources and direct lines of communication with that powerful, go-to custodial relationship.

Nathan Stibbs, President & Chief Strategy Officer – Continuum Advisory, LLC

Nathan Stibbs, President & Chief Strategy Officer, Continuum Advisory LLC

Having access to more than one custodian not only provides choice for advisors and their clients, but also creates more flexibility in how RIAs can manage and grow their business.

This is important because the speed of change in the RIA channel, like the rest of the industry, has never been greater, and advisors need platforms and resources that maximize their ability to evolve and adapt their businesses in real time.  

This is especially critical for advisory firms focused on driving acquisitions and recruiting-based growth, where the goal is to ensure you have offerings that can appeal effectively to independent financial advisor business owners.

And of course, let’s not forget about consolidation among the custodians!

What were once “The Big Three” custodians in Fidelity, Schwab and TD Ameritrade will soon become “The Big Two,” with the final product of the TD/Schwab merger holding roughly 50% of all RIA assets.

Custodians, like any other business, have different strengths and weaknesses, different ownership structures and different service models.

Working with more than one clearing platform provides an element of flexibility, choice and protection against leaving all your clients’ eggs in one custodial basket.

Are there operational and compliance factors to carefully consider?  Of course, especially in today’s cyber security environment.  

Thanks to technology – it’s easier to manage my clients across multiple platforms.

But the evolution of financial technology has made it easier and cheaper to manage client accounts across multiple platforms.  

Years ago, advisors were forced to reply primarily on the clearing firm’s technology to power their businesses but, today, they have access to secure third-party platforms that feature multi-custodian integrations, including workflows and portfolio management, making custodians’ technology less critical.

Effectively supporting multiple custodians requires scale and systems, and given the cost and complexity, it probably doesn’t make sense for smaller firms – Especially firms with less than $500 million in assets.

But for larger, M&A-focused firms – think ease of client transition – offering a choice of custodian provides a necessary element of flexibility to maximize growth, while delivering a dynamic client experience.  

Art Cooper, Managing Director – Cooper McManus Wealth Management

Art Cooper, Managing Partner, Cooper McManus Wealth Management

Having relationships with multiple custodians is critical for a hybrid RIA actively recruiting Investment Advisor Representatives to its platform.  

In large part, this is because established financial advisors tend to already have their favorite or preferred custodian to hold the bulk of their assets, and they are resistant to change.  

Hybrid RIA firms will find it is a much easier discussion when talking with prospective advisor recruits if they can say definitively that no custodial changes will be necessary as part of a potential transition.

With the technology we have today, maintaining and trading portfolios with multiple custodians is a breeze. It also allows us to provide clients consolidated reporting and performance statements.  

Now, this multiple custodian advisor model does add complexities and additional technology costs.

Relationship with more than just one “custodian” sounds complicated eh?

And of course, there is something simple and clean about maintaining assets at only one custodian.  

With one custodian, there’s only one platform to learn for establishing new accounts, funding, trading, reporting, tracking and distributing for only one firm, versus many platforms.  

Using a single custodian also reduces technology costs because you are not aggregating data from multiple sources.

But ultimately, independent financial advisors seeking to join forces with a hybrid RIA will be on the lookout for firms that can meet the widest spectrum of custody needs, including existing custody relationships.  

Adam Malamed, CEO, Ajax Investment Partners & Chair, WSR Hybrid RIA Roundtable

This would argue for having more than one custodial relationship for hybrid RIAs that want to be successful at recruiting.

Let’s Get Ready for Next Month!

Many thanks to Art Cooper, Nathan Stibbs and Paul Vladem for sharing their guidance and insights!

For next month:  As always, we look to you, our fellow WSR community members, to share their feedback and suggestions on the issues that are most important to you that we can help spotlight with productive potential ideas.

Please send us your thoughts, and in the meantime, we encourage you to share this feature with your contacts, colleagues and industry friends.

Thanks for your support!

Adam Malamed, Chair of WSR’s Hybrid RIA Roundtable, is CEO of Ajax Investment Partners, a Miami-based venture fund
If you have ideas for future Hybrid RIA Roundtable features, please email us at ContributingEd@wealthsolutionsreport.com

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