The Future Of Third-Party Custody Solutions

Chris Latham, Managing Editor, Wealth Solutions Report

Experts From Schwab, Fidelity, Pershing, LPL, Goldman Sachs And Other Leading Firms Discuss The Custodial Landscape For Small And Midsize RIAs

As large national custodians increasingly commit resources to their RIA support services and technology capabilities with the goal of adding value for high-growth firms, this dynamic could soon start affecting how the broader wealth management ecosystem operates. To uncover what’s on the custodial horizon, WSR gathered insights from executives at Schwab, Fidelity, Pershing, LPL Financial, Goldman Sachs and other leading firms.

“Regardless of AUM, RIAs face similar pressures – the increasing complexity of client needs, as well as the imperative to grow,” Tom Bradley, Managing Director with Schwab Advisor Services, told WSR. “Clients want highly personalized, digital-first and holistic services, and it’s incumbent upon custodians to help provide advisors, especially those smaller firms with more streamlined in-house capabilities, with the tools and resources required to meet these demands while still scaling their businesses.”

Tom Bradley, Managing Director, Schwab Advisor Services

Bradley told WSR that 80% of RIAs on Schwab’s platform manage $300 million or less, that the custodian has neither account minimums nor charges a custodial fee – and has no plans to change that. The fundamental promise of Schwab’s merger with TD Ameritrade was to bring together the best of both platforms to provide all advisors, including the small and midsize segments, the support they expect and deserve, according to Bradley.

Indeed, it appears that Schwab’s migration of TD Ameritrade custodial accounts to Schwab’s own platform, widely considered the biggest custody conversion in U.S. history, occurred largely as planned over Labor Day weekend and that the custodian suffered relatively minor asset losses as a result.

Post-integration, Schwab Advisor Center includes Veo One tools such as iRebal, thinkpipes and Model Market Center, while Schwab’s Business Consulting and Education offerings are designed to help small and midsize advisors spend less time on administration and more on client relationships.

Proof That Size Matters

However, the TD Ameritrade deal, which Schwab completed in October 2020, was a clear sign that size does matter in almost all aspects of the wealth management space. Meanwhile many industry insiders – including some who recently spoke to WSR on condition of anonymity – have long insisted that major custodians focus on larger RIAs instead of smaller to midsize RIAs that are not as cost effective for those custodians to service.

Amit Chopra, Founder, Forefront Wealth Planning & Asset Management

“My biggest obstacle was having an established book, but not a large enough book where the current custodian would take me as a stand-alone RIA. I am forced to roll up or repaper everyone and have clients and myself learn a new custodians system,” Amit Chopra, the founder of Ramsey, N.J.-based Forefront Wealth Planning & Asset Management, posted to X, formerly Twitter, on Jan. 2, 2023.

In the fourth quarter of 2022, Forefront affiliated with NewEdge Advisors, which itself is part of NewEdge Capital Group, a firm that exceeded $40 billion in client assets serviced in June 2023. Also in Q4 2022, Bob Veres detailed this issue in his Oct. 24, 2022, Nerd’s Eye View guest article on

“The service ‘discrimination’ (is there a better word for it?) at the larger custodians is now out in the open, and while large firms may be happy with it (they are able to negotiate the strongest arrangements for themselves, given their size and assets), and some small-to-mid-sized firms may accept it as a trade-off (in order to access Schwabitrade’s or Fidelity’s platform and resources), as advisory firms increasingly ask more pointed questions, service levels – especially amongst small-to-mid-sized firms – is increasingly becoming a competitive issue,” Veres wrote.

As the trend persists, the primary beneficiaries may become preferred-partner RIA aggregators and dual registrant large wealth enterprises. This potentially creates an opportunity for the RIAs to conduct tuck-in deals, surrender their RIA registration and remain an IAR business, potentially without suffering a drop in the quality of their support services. In fact, independent broker-dealers already have been accumulating dual registrant IAR recruit referrals through that process.

Joe McQuaid, Managing Director, Platform Solutions, Concurrent

According to Joe McQuaid, Managing Director, Platform Solutions at Concurrent, the evolving landscape of custodial services and their technological advancements presents opportunities and challenges for small and midsize RIAs because larger RIAs adapt well to technological advances but smaller ones need help to leverage new features.

Whereas larger RIAs often enjoy more support from custodians, smaller RIAs may find themselves navigating changes on their own as they struggle to uncover and utilize new tools, which is why custodians should prioritize enhancing support options, he argues.

“This could include hosting more educational events to facilitate learning, expanding their support staff to provide personalized assistance, and developing intuitive tools to help RIAs discover available platform-level features that can enhance their businesses,” McQuaid told WSR. “Custodians must ensure that their support infrastructure evolves in parallel so that all RIAs can maximize the benefits of these advancements.”

Concurrent departed from Raymond James last year and has since restructured as a multi-custodial hybrid RIA. In May, Concurrent announced that it aims to surpass $17 billion in AUA by year-end by onboarding pre-existing accounts to the RIA platform.

Custodial Economics

Custodial economics also plays a big role here. What on the surface seems like a low-margin business still would have to be a reliably profitable one, based on both the number of players and potential revenue streams.

On the one hand, if higher interest rates persist, custodians may be able to continue capturing a strong spread on sweep accounts and cash balances that financial advisors must maintain in order to receive their quarterly fees. This creates incentive to pursue larger RIAs. On the other hand, custodians that accumulate a lot of customers also accumulate a lot of cross-selling opportunities for their additional products and services. This creates incentive to pursue market share regardless of RIA asset levels.

Meanwhile, the array of upstart and niche custody solutions providers vying for market share appears to be expanding at a healthy pace. Raymond James, SEI, Altruist, TradePMR, Interactive Brokers, Axos Advisor Services and other platforms have loyal customers.

In 2022, Schwab’s custodial market share topped the T3/Inside Information Software Survey at 20.65%, SEI came in at 3.54% and Equity Advisor Solutions had 0.18%. In October 2023, Equity Advisor Solutions and ETC Brokerage announced that they came together to form Innovayte, targeting RIAs with $100 million to $800 million in client assets.

Cetera Investment Services was granted custodial powers in 1993 from the IRS. LPL’s custody and clearing platform has been on the market since 2008. Goldman Sachs entered the RIA custody space in 2020 and this year Goldman Sachs Advisor Solutions (GSAS) has brought on a series of high-profile RIAs to its fast-growing platform. Entrustody also launched in 2020. And Envestnet still plans to launch its own custody platform in mid-2024, after multiple delays.

Can the RIA custody space actually support all these competitors over the long-term? The answer is by no means definite, but if wirehouse breakaways continue to birth new RIAs, in theory the custody space does have the capacity to grow.

If so, this may even present an opening for IBD networks such as Osaic and Atria Wealth Solutions to someday follow the strategy of creating their own custody and clearing platforms instead of continuing to rely on third-party custody solutions. To be sure, the cost involved in building such an initiative would be significant. However, that does not rule out eventually acquiring smaller custodians to gain the capability.

Differentiation Among Custodians

“In the midst of continued market disruption, LPL is dedicated to filling the service and support void that many RIAs are experiencing,” Steve Earner, Senior Vice President, RIA Custody at LPL Financial, told WSR. “Once the center of an RIA’s ecosystem, custodians today are too often simply providing a commoditized service. LPL is disrupting the market and redefining the role of the custodian – as a true growth partner to RIAs, regardless of size.”

Steve Earner, Senior Vice President, RIA Custody, LPL Financial

According to the Cerulli Associates 2023 U.S. RIA Marketplace Report, LPL had approximately $194 billion in assets under custody (AUC) in 2022, 9.2% lower than in 2021;  Pershing had $341 billion, 2.4% lower; Fidelity had nearly $1.4 trillion, 10.5% lower; and Schwab had nearly $3.4 trillion in AUC, 9.9% lower than in 2021.

Given their ability to grow inorganically by attracting new independent and hybrid RlAs as well as winning takeover business from other custodians, the 2022 asset losses across the four major custodians were less than that experienced by the RIA channel as a whole, Cerulli noted.

Goldmans Sachs stood out this year by establishing a multi-billion-dollar strategic custody relationship with Creative Planning that enables Creative to provide GSAS’ custody solutions to their clients, including its lending platform, product offerings, advanced analytics and digitized middle and back office for alternative investments. (This year, Creative also acquired Goldman Sachs’ wealth management unit – the mass affluent-focused advisory group that originated with Goldman’s acquisition of United Capital Financial Advisers in 2019.)

GSAS also recruited $650 million Stablepoint Partners in November, $1.9 billion SpirePoint Private Client in October, $1 billion Prime Capital in May, and United Advisor Group in February, estimated initially at $750 million. Richard Lofgren, Head of Advisor Engagement at GSAS, attributes his team’s recent successes to not competing with RIAs but equipping them with the solutions that RIAs choose in order to cover their clients.

In addition to custody, those solutions include access to Goldman Sachs’ institutional thought leadership as well as products and strategies such as asset management (GSAM), lending against portfolios (GS Select), structured products and structured notes, trading desks, as well as solutions for concentrated equity positions like hedging, caps and collars.

Richard Lofgren, Head of Advisor Engagement, GSAS

“We’re not new to custody. We’ve been custodying and safeguarding assets for approximately 150 years. And we’re not new to RIAs. The ability to bring those together into one offering, that is new,” Lofgren told WSR.

Rather than RIA asset size, GSAS is focusing on firms that are in growth mode, meaning RIAs that have seen their end-clients grow over time or are targeting clients with a need for the types of complex services where Goldman Sachs excels, Lofgren says. “At times, we can make the ‘hard’ easy for an advisor.”

According to Tony Stich, Chief Revenue Officer at Entrustody, custodians should function with the sole purpose of driving efficiencies for their RIA customers, by seeking to improve how advisors deliver advice through frictionless experiences, meaningful data and interoperability within their tech stack.

“At Entrustody, we take it even a step further: our goal is to provide custodial services to the extreme point where an advisor shouldn’t need to access our platform as we are so embedded, so deeply integrated, that we don’t disrupt, but rather enhance, an RIA’s unique advice delivery,” Stitch says.

Tony Stich, Chief Revenue Officer, Entrustody

On Oct. 4, Altruist posted a thread on X, formerly Twitter, laying out its value proposition for RIAs. As Altruist explained, it’s table stakes for self-clearing custodians to safekeep client accounts, have insurance coverage – excess SIPC, expanded FDIC – and some form of asset protection guarantee for unauthorized account activity, settle trades, and adhere to regulatory policies defined by FINRA and the SEC.

Value-additive custodial differentiators for advisors include fully digital account opening and funding; direct integrations with CRM, financial planning and risk analysis software; trading fractional shares to reduce cash drag in client portfolios; and in general custodial business practices that give the greatest economic benefits to both the firm and the end client – according to Altruist.

“Custodians are in a special position to build tech,” the company posted. “But what any given custodian builds depends on which customer is at the center of their business.”

Third-Party Vendors

To get the complete picture on how the custodial landscape could and should evolve on behalf of wealth management firms, WSR also spoke with third-party vendors, which in some respects are the technological infrastructure that many RIAs rely upon to fill in software gaps with their custodians.

According to Rob Klapprodt, Corporate Strategy Officer at Vestmark, a provider of portfolio management, trading solutions and outsourced services, enterprises should approach custody from a wealthtech-driven asset management perspective. This entails maximizing digitally-enabled investment management solutions, prioritizing technologists that understand wealth management, and tapping into the accelerated growth that is possible through leading platforms that underscore the quality and flexibility of the technology.

Rob Klapprodt, Corporate Strategy Officer, Vestmark

In Klapprodt’s view, custodians should prioritize two strategies to meet the demands of advisors and firms. First they should embrace bundled solutions that encompass wealth advisory, portfolio construction across all investment offerings, and efficient trading. Second, custodians should ensure seamless integration with various providers that avoid lock-in scenarios.

“Data-driven decision-making should underpin their approach, focusing on scalable and interoperable solutions,” Klapprodt says. “The goal is to future-proof businesses by accommodating different advisor business models while promoting frictionless interactions, flexibility, scalability and technological innovation that doesn’t inhibit growth.”

Akhil Lodha, Founder and CEO of the risk management platform StratiFi, believes that wealth management enterprises have a substantial opportunity in acquiring and integrating smaller RIAs. By forming strategic alliances with various custodians and capitalizing on technology, these firms can effectively manage assets across diverse platforms, he argues, as long as the strategy goes beyond expansion to craft a more adaptable and client-centric ecosystem.

Akhil Lodha, Founder and CEO, StratiFi

“However, the execution of the strategy is complicated by the piecemeal systems of major players like Orion, SS&C and Morningstar that exist today,” Lodha says. He thinks their growth through acquisitions and organic development has often resulted in systems that lack cohesion, potentially leading to compliance gaps and heightened regulatory risks.

“Custodians grapple with the challenge of adapting to wealth management’s rapidly changing technological landscape,” Lodha says. “This struggle stems from outdated legacy systems, the increasing complexity of financial regulations and the heightened expectations for digital integration and user experience.”

A solution, according to Lodha, is for wealth management enterprises to support multiple custodians but embrace systems that can streamline everything from risk assessments and investor suitability to RegBI compliance, into one seamless experience. At the same time, he insists, custodians should open their APIs and integrate with specialized risk analytics and compliance firms.

Tim Rutka, President, BETA, BetaNXT

As Tim Rutka, President of BETA, part of the wealth management infrastructure software provider BetaNXT, sees it, small to midsize RIAs all have the same requirements to onboard, fund, trade, asset service and report. But he warns that the type of customer served determines the different levels of sophistication required to support, or grow from mass affluent to high net worth. As a result, he sees the options as falling into two primary categories.

“The experienced custodians typically fall short on innovative technology solutions, but experience and proven capabilities matter,” Rutka says. “The innovative technology providers lead with technology, but may lack the regulatory focus in the solution.” That’s where a provider that can deliver real time APIs, to enable innovation and a regulatory compliant platform that meets the custodian requirements, comes into play, according to Rutka.

Back To The Majors

Since the major custodians are well aware of the challenges that they face, as well as challenges of the RIAs that they serve, perhaps the true question is how Pershing and Fidelity will adapt to the plethora of changes afoot – from Schwab’s absorption of TD Ameritrade, to the new custodial market entrants, to the influence of RIA aggregators and potential IBD innovation.

Ainslie Simmonds, President, BNY Mellon’s Pershing X

Ainslie Simmonds, President of BNY Mellon’s Pershing X, notes that as small and midsize firms face greater demands to deliver more personalized solutions to their clients, they’ve been turning to their custodians for help with offerings such as lending products, alternatives, and enhanced liquid product solutions like direct indexing to help generate tax alpha.

“But to be able to deliver on this, advisors need the right technology,” Simmonds told WSR. “This is where BNY Mellon’s Pershing has differentiated itself with our highly connected and data-driven Wove wealth management platform, which enables advisors to work seamlessly across multiple applications, accounts and custodians within one platform. With Wove, midsize firms would have the toolkit to help them grow into larger-sized firms.”

Noni Robinson, Head of Emerging RIAs, Fidelity Investments, also addressed why small and midsize wealth management firms come to the custodian for more than the traditional role of safeguarding funds.

Noni Robinson, Head of Emerging RIAs, Fidelity Investments

Broadly, they want guidance on how to deliver more value to clients, work more efficiently and ultimately grow their business. One way Fidelity seeks to tackle this is by pairing high-touch service with its $4.2 billion investment in technology. The goal is to allow the multitude of smaller firms Fidelity works with to operate like their larger competitors while maintaining the personal appeal that differentiates them.

“We continue to enhance our core offerings, which already allow advisors to digitally open accounts within minutes and enable roughly 67% of transactions to go straight through processing,” Robinson told WSR. “Plus, every client has a dedicated relationship manager to help advisors grow their practice, realize operational efficiency, and scale with the right technology and solutions.”

Chris Latham, Managing Editor at Wealth Solutions Report, can be reached at

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