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According to data from the SEC, about 30% of RIAs with between $100 million and $250 million in client assets use multiple custodians. That number jumps to 72% for firms with over $5 billion in assets. The data across the board shows that as firms increase in size, they tend to leverage more than one RIA custodian.1
Why is that?
Perhaps the firm keeps multiple RIA custodians because they feel it's their fiduciary duty. For some, it’s a request that comes directly from clients – investors that would like to work with the RIA but don't want to move their accounts. Or maybe it’s a difference in RIA technology capabilities, with one provider offering advanced trading tools and another offering a broader range of available account types.
There a plenty of instances when it can make sense for a RIA to be multi-custodial as they grow. So, why do some of the biggest RIA custodians try to restrict this option?
All or Nothing – A Lose-Lose?
Some RIA custodians approach relationships with advisors in a potentially problematic way: all or nothing. RIAs are forced to choose to either work solely with that provider or to seek services elsewhere.
The RIA custodian will no doubt lose opportunities to work with RIAs that would like to be multi-custodial. These RIAs could be a great fit for the provider but are written off because of their approach to vendor relationships.
At the same time, the RIA will miss out on the opportunity to work with the provider. That RIA custodian could have capabilities to help the advisor grow their firm and better serve their clients.
Who benefits from this approach? Both sides lose opportunities – they may either have to compromise on their goals or miss out on business.
The Risk of Limiting Providers: Sacrificing Fiduciary Duty
As RIAs continue to grow, a few things can happen. Perhaps they expand the services that the firm provides for clients to help bring on larger, more diverse accounts. Or maybe they begin adding a broader slate of clients, spanning a range of different financial situations and investment goals.
Regardless of how a RIA grows, the firm will become more complex over time. As complexity increases, the firm’s custodial needs could evolve.
While one RIA custodian could be a great fit when a firm is getting started, that could all change. As a firm’s target client evolves over time the team may find that other providers offer specific tools that could streamline their workflow in this next stage of growth.
The top priority for RIAs is acting in the best interest of their clients – delivering the expertise and service to uphold their fiduciary duty. If an advisor is constricted and unable to add new providers to help fulfil that duty, their clients can suffer.
TradePMR’s Approach – Whatever Works for You
While TradePMR would of course love to be an advisor’s sole custodial services provider, that has never been the firm’s priority.
TradePMR is 100% committed to helping RIAs grow. If that means the RIA works solely with us, great. If it’s a mix of us and other providers, that’s great too. Whatever makes the most sense for the advisor’s unique business.
So why does TradePMR take a different approach from some of the other custodial service providers in the industry? It comes down to the firm’s focus on RIAs, and only RIAs.
The TradePMR team intimately understands the challenges facing independent advisors looking to grow in today’s hyper-competitive market. The firm was founded by a former RIA who set out to build a provider that served RIAs the way he wanted to be served. A firm committed to facilitating RIA growth with a strong focus on technology, service, and flexibility.
Feel Constricted by Your RIA Custodian?
If you’re considering switching RIA custodians or adding a new custodial service provider to your roster, we should talk. We can dive into your business, your team, and your growth goals.
Let’s see if TradePMR could be the right provider to facilitate your freedom and help bring your business into its next stage of growth.
1 Custodians tap into a rising tide in the RIA industry, InvestmentNews by Devin McGinley. Published August 23, 2021.