Charles Paikert, FWR's US correspondent, looks at whether custodians are poised to make the wealth platforms of organizations such as Orion, Black Diamond, Morningstar Office and Envestnet irrelevant.

John O’Connell, CEO of the research and consulting firm The Oasis Group, thinks custodians will make the wealth platforms of organizations such as Orion, Black Diamond, Morningstar Office and Envestnet irrelevant. According to new research from the firm, Vantage Point Peaks for Custodian Platforms, a surprising 66 per cent of RIAs only use a single custodian.

Because custodians’ platform offerings have become so comprehensive and cost-effective – i.e. free if the RIA custodies assets with the custodian – O’Connell believes that there’s very little reason for advisory firms, especially those with less than $500 million in assets, to pay between $60,000 and $100,000 a year for services they can get for free.

“Custodians want to take wealth platforms out of the equation,” O’Connell told Family Wealth Report. “They’re playing the long game.” That makes selecting the right custodian all the more critical for RIAs. According to O’Connell, advisory firms need to ask themselves three key questions when conducting due diligence:

·        How much time can the custodian save our team so the firm can continue to grow?
·        Is the custodian aligned with the direction we want the firm to go?
·        What investment capabilities does the custodian have to serve the needs of the firm’s clients?

Customer service now table stakes
On the seller’s side, custodians shouldn’t fool themselves into thinking that customer service differentiates them from the competition.

“Customer service is table stakes now,” O’Connell said. “There’s now a high level of customer service throughout the industry. And our research shows that advisors across the board are extremely happy with the customer service they receive.”

In addition, custodians’ ability to integrate tech stacks and software is too often overstated, according to O’Connell. “Everybody says they integrate,” he said, “but that’s different from really having deep integration, where, for example, a digital account opening goes direct from the platform to the custodian instead of just form filling.”

Ranking a reordered marketplace
Responding to a reordered marketplace that has seen heightened competition since the mega-merger last year of Charles Schwab and TD Ameritrade, the industry’s two largest vendors, Oasis analyzed features, capabilities, strengths, weaknesses, and the ability to execute of 10 of the leading custodians.

Among the findings:

·       Schwab has the strongest digital account opening functionality, but needs to improve its client portal, which “is not highly configurable.”

·       TradePMR Fusion has one of the best trading and rebalancing capabilities, including trading at the model sleeve level, but lacks the integrations to support alternative investments, limiting the company’s ability to support some wealth management firms.

·       Altruist has a 100 per cent digital account opening that efficiently allows for multiple accounts to be opened simultaneously, and ACAT and ACH funding makes it simple to fund newly-opened accounts.

Also included in the report are Innovayte, Apex Fintech Solutions, Goldman Sachs, Hilltop Securities, Fidelity, Pershing and RBC.

And while custodians’ miserly habit of providing only miniscule returns to clients on their cash accounts is very much in the news, O’Connell doesn’t think cash sweeps will or should be much of a factor for RIAs when they select a custodian.

“I think it’s a passing issue,” he said. “There was a race to zero on fees and custodians had to make up the revenue. They’re under attack now and things will change, but it’s likely to have an effect on fee structure in the future.”