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How Smaller Custodians Might Gain Market Share
Four giants rule , but the ground beneath their feet is shifting .
By Steve Garmhausen
CAN SMALLER RIA CUSTODIANS EVER take meaningful market share from the big four of Charles Schwab , Fidelity , Pershing and LPL Financial ? It seems unlikely at first glance : With more than $ 5 trillion in combined assets — the lion ’ s share at Schwab , Fidelity and Pershing — the dominant firms reportedly control some 85 % of the market . But the wealth management industry is ever evolving , notes Timothy Welsh , the head of consulting firm Nexus Strategy . “ The more modern , nimble , and technology-focused you are , it ’ s almost a mandate that you will succeed ,” he says .
While the dominant RIA custodians might not lose significant market share anytime soon , smaller rivals like Interactive Brokers , TradePMR , Altruist and Goldman Sachs Advisor Solutions could gain ground by offering competitive pricing , innovative technology , niche services and a focus on smaller RIAs . Meanwhile , RIA firms ’ growing use of multiple custodians means smaller players have a better chance to at least get a foot in the door . Finally , Schwab ’ s 2020 acquisition and subsequent consolidation of TD Ameritrade has created opportunities for smaller custodians to pick off RIA firms unhappy about the ensuing changes , Welsh and others say .
“ The merger of TD Ameritrade and Schwab certainly helped us ,” says Steven Sanders , executive vice president for marketing and product development at Interactive Brokers . His firm serves more than 1,000 independent advisor professionals , and it says its RIA assets have increased by 60 % over the past year .
Interactive Brokers , which branched beyond proprietary traders and individuals in the early 2000s to serve advisors and other institutional clients , touts automation , low cost and good service as selling points . One attractive feature for certain advisors is Interactive ’ s international asset custody . The platform has clients from over 200 countries and territories , Sanders says .
Its “ universal account ” allows clients to deposit a variety of currencies and trade globally . When some rivals exited overseas operations after 2008 to focus on the U . S ., Interactive doubled down on the global business , Sanders says . “ Really any advisor around the world that wants to trade into the U . S ., or any U . S . advisor that has offshore clients , we ’ re pretty much the only choice .”
Some custodians position themselves as more welcoming of non-traditional assets . Upstart custody firm Innovayte touts its ability to custody assets like crypto and self-directed IRAs , for example . Lending capabilities are another way for smaller custodians to garner attention .
Goldman Sachs Advisor Solutions hasn ’ t quantified its growth ambitions , but it ’ s banking on strengths like its brand , product roster and lending capabilities . In May , it announced it would begin allowing advisors ’ clients to borrow against the
DECEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 27