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alternative investments in their portfolios . Such loans are traditionally offered only by private banks and wirehouses . A few months earlier , GSAS had begun letting clients borrow against Goldman Sachs-issued structured notes .
Goldman ’ s marquee brand is another lever for winning custodial business , Welsh says . “ That breakaway team that wants to leave Morgan Stanley , and is leery about going to Fidelity or Schwab because they think [ of them as ] ‘ discount brokers ’ … Goldman has a huge advantage to get those teams ,” he says .
RIA firms rarely change custodians . A 2023 report by Boston-based research firm Cerulli Associates found that just 4 % had done so in the previous 12 months . Logistical challenges , including the dreaded repapering process , are part of the reason . In addition , learning a new custodian ’ s technology requires time and training . And inertia often causes advisors to remain loyal even when they ’ re dissatisfied .
On the other hand , RIAs appear much more open to adding custodians ( if not outright switching ): Cerulli said one in four has explored doing that in the next year . Often the reason is to get at products and services that are unavailable or too expensive at the primary custodian , says Welsh . “ A firm might say , ‘ I can ’ t get the bonds over at Schwab at the great prices you have , so we ’ re going to do bonds with you and add that on ,’” he says . “ And then if [ the primary custodian ’ s ] customer service turns bad or the technology goes down , it ’ s kind of insurance against that .”
Because it adds complexity , the multicustodian route often makes more sense for larger RIAs , which might test-drive a new custodian by , say , using it for its next 20 new clients , or entrusting it with a fixed amount of assets , say $ 20 million . “ Everyone can definitely go to the mega- RIA firms and say , let us show you what we can do for you ,” says Welsh . “ And I think that will be their opening .”
TradePMR serves as an “ additional custodian ” for 20 or 25 RIA firms , says Robb Baldwin , the company ’ s founder , president and CEO . TradePMR works with approximately 400 advisory firms in all and boasts 1,500 active users on its platform . Baldwin says the reputation of his company ’ s technology draws prospective clients ’ interest : Its platform and its online portfolio management offering each earned the highest average advisor satisfaction rating in the 2024 T3 / Inside Information survey .
“ That breakaway team that wants to leave Morgan Stanley , and is leery about going to Fidelity or Schwab because they think [ of them as ] ‘ discount brokers ’ … Goldman has a huge advantage to get those teams .”
— Timothy Welsh , Nexus Strategy
But after they join the platform , they learn there ’ s more to it , Baldwin says . “ A lot of advisors say , ‘ OK , yeah we know them ; they have a great tech platform .’ Then they talk to advisors who are with us , and they start to recognize we ’ re not just tech : We answer the phone , we talk to them , we have an actual relationship with them .”
TradePMR ’ s service letters of agreement with client firms state that advisor phone calls will be answered within 15 seconds . “ We have to hit those SLAs or hire to continue to scale ,” says Baldwin , a former financial advisor himself . “ That ’ s just a service level that I expected as an advisor , and the same service that we deliver today .”
Custody businesses are only as good as their technology , and big established firms often get stuck with legacy tech , says Sanders , who was an executive at Citibank for 15 years before joining Interactive Brokers in 2001 . Citing Citi as a cautionary tale , he says his old employer enjoyed strong market share in certain businesses , “ but they were running on 1960s mainframe systems .” Competitors with better and newer technology gradually ate into Citi ’ s market share , he says .
Interactive has strived to stay on the cutting edge , Sanders says . Its trader workstation was originally built in Java code dating back to the 1990s . In 2010 , the company built a streamlined , easierto-use successor workstation in HTML . “ That ’ s a hard decision to make ,” Sanders says . “ It ’ s much easier to just do another patch , to add this here and bolt that on there , but I think that eventually catches up with you .
“ This business is ultimately all about technology ,” he adds . “ We consider ourselves a technology company in the brokerage business , and we ’ re constantly reinventing ourselves .”
Six-year-old Altruist , which serves more than 4,300 advisors , is also betting largely on its modern technology to stand out . “ Our focus is on RIAs seeking modern technology and personalized service , areas where legacy custodians like Schwab and Fidelity have fallen behind ,” the company said in a statement . “ As the only modern , self-clearing custodian built exclusively for independent advisors , Altruist offers a fully digital , streamlined platform that simplifies account management , trading , and reporting .”
As for TradePMR , its tech innovations include the recent rollout of Fusion SYNC , an AI-enabled tool that streamlines custodial transitions . It allows RIAs to upload all their client information and automatically populate it into TradePMR ’ s platform . Fusion also cross-checks the data for errors , saving new clients considerable time and effort , the firm says .
It ’ s possible that the so-called great wealth transfer , with baby boomers transferring tens of trillions of dollars to younger , tech-savvy generations with changing investment tastes , will help to shake up the custodial landscape . TradePMR ’ s Baldwin is optimistic . “ I think all of this money movement that ’ s going to go on in our industry opens the door for us to get additional market share ,” he says .
28 | FINANCIAL ADVISOR MAGAZINE | DECEMBER 2024 WWW . FA-MAG . COM