Putting your clients in the best position to succeed.
With the SEC’s release of the Regulation Best Interest rule back in 2019, the financial advisory industry got some clarity around expectations for registered investment advisors (RIAs). While many RIAs have long maintained a fiduciary standard, the rule clarified how that standard should be upheld for advisors. Specifically, that “investment adviser[s] must, at all times, serve the best interest of its client and not subordinate its client’s interest to its own.”1
A crucial element of an RIA fulfilling their fiduciary duty is evaluating pricing. This includes Best Execution and a duty to monitor the account throughout the relationship. As RIAs look to navigate these rules and maintain their fiduciary duty, many have taken the important step of evaluating their suite of vendors. Are these providers offering the resources clients truly need to succeed at a fair and competitive price? Are their offerings evolving with industry standards to deliver the best available opportunities for clients?
On top of evaluating the technical capabilities of their third-party providers, RIAs should be sure they dive into one key point with their vendors: pricing.
With thousands of RIAs eyeing a custodian merger and subsequent transition, it’s critical that these advisors ensure that the pricing they are receiving from their RIA custodian makes the most sense for their firm, and is in the best interest of their clients.
Breaking Down RIA Custodian Pricing
Advisors pay RIA custodians in a few different ways.
Perhaps they use ticket-based or transaction-based pricing, where the custodian receives a fee for each trade placed. Or maybe they use an asset-based pricing model where the custodian gets a recurring fee based on the amount of assets held with the custodian.
Every RIA custodian has its own unique way of pricing out these options. Some may have flashy offerings like “zero-fee trading” to entice advisors, while others may look to deliver asset-based pricing at a lower basis point fee than competitors. Beyond these core pricing models, the custodian may also make income through money market revenue, margin revenue, and asset-backed loans, to name a few.
Pricing for the RIA, and for the Clients
When evaluating the success of a custodial relationship, consider how the pricing structure was determined. Pricing for custodial services and technology doesn’t just impact the RIA, it can have a major impact on clients.
TradePMR takes a personalized approach to pricing to help develop a pricing model that fits the needs of the unique RIA. The firm believes that pricing should begin with a conversation, not a one-size-fits-all rate sheet. The team works to understand how an advisor’s business works, how they deliver value to clients, and what their plans are for short- and long-term growth. Only once those points are clear does TradePMR look to deliver a pricing model that could work for the RIA.
How did you land on a pricing structure with your RIA custodian? Were you told what your pricing would be, or did you discuss what pricing would be the best fit for your firm? Do you feel that the pricing structure facilitates growth for your firm, and your clients?
If you feel that your custodian’s pricing could be inhibiting client growth, it may be time to look elsewhere.
Time to look for greener pastures?
Many RIAs that are approaching a custodial merger are taking a “wait-and-see” approach. They’re planning on taking part of a major custodial transition, without too much clarity as to what they can expect throughout the process, and how the move could impact clients.
Will the pricing structure remain the same after the move? Does the current pricing structure make the most sense for the RIA’s business, and their clients? Will the advisor continue paying for the same level of service and technology, or will there be a noticeable dip in quality?
It’s hard to say – what is clear is that there a lot of questions up in the air. There is no harm in seeing what alternatives are out there.
RIAs considering a move may review alternative custodian options and decide that their current provider has the offerings and pricing that’s best fit for their business. Or they may find that there’s another vendor in the industry that can better facilitate their clients’ success. There’s no guarantee, but it’s an advisor’s fiduciary duty to do the research and find out.
If you’d be interested in learning about TradePMR’s offering and if the provider could offer pricing that better fits your RIA’s needs, we should talk. We can dive into your business, the types of clients you serve, and if TradePMR could help you reach the next stage of your business.
1 Regulation Best Interest and the Investment Adviser Fiduciary Duty: Two Strong Standards that Protect and Provide Choice for Main Street Investors, Securities and Exchange Commission, by Chairman Jay Clayton. Published July 8, 2019.
