As an independent Advisor or aspiring RIA, one of the most crucial decisions you’ll make is selecting the right custodian for your firm. 

Your custodian plays a pivotal role in safeguarding client assets, facilitating trades, and providing needed back-office support. With numerous options available in today’s ever-evolving market, how do you find the solution that aligns with your business goals and client needs?

This choice can significantly impact efficiency, client satisfaction, and overall success. To better navigate this decision-making process, it’s important to understand what an RIA custodian is, the criteria to consider when choosing one, and insights from industry veterans.

Essential Transition and Business Startup Support

One of TERRANA GROUP’s main missions is to nurture and clarify the path to independence for today’s forward-thinking Advisors. 

The RIA model is reshaping the wealth management space, with the marketplace expanding nearly 8.6% in 2022 alone, and some experts posit that Advisors with classic or hybrid RIAs will represent 31.2% of the assets under management by third-party intermediaries — up from 26.7%.

One of the mandates of the Securities and Exchange Commission (SEC) is to regulate the activities of RIAs via the Custody Rule under the Investment Advisors Act of 1940, § 275.206(4)-2, Custody of Funds or Securities of Clients, which requires that independent Advisors maintain their clients’ assets and securities via a financial institution or entity that meets the requirements for a qualified custodian.  

The primary role of a custodian is to ensure the security of client assets, maintain accurate records, and provide essential services such as trade execution, reporting, tech integration, and more. These entities can be federal or state-chartered banks, trust companies, broker-dealers, or other qualified institutions approved by the SEC.

The right custodian can become an invaluable building block for a strong practice, influencing your:

Exploring Your Options

When selecting a custodian, growth-minded RIAs should consider several critical factors to ensure they make the best choice for their strategic plans:

→ Reputation and Experience

When entrusting your clients’ assets to a custodian, reputation matters. Advisors should look for those with a proven track record of reliability and trustworthiness. 

Established custodians with decades of experience are often better equipped to handle the complexities of asset management and regulatory compliance. For instance, custodians like Charles Schwab, Fidelity, and BNY Pershing are well-known for their extensive experience and robust service offerings.

→ Fee Structure

Cost is a significant consideration when choosing a custodian. Advisors should evaluate the fee structures of potential custodians, including 12b-1 fees, payments for order flow, interest on asset-backed lending/margins, and other additional charges. 

Some custodians offer competitive pricing with $0 ticket charges for certain mutual funds, while others may have nominal basis point custody or platform fees. It’s essential to understand the total cost of working with a custodian to avoid unexpected expenses and plan accordingly. 

→ Service and Support

Exceptional customer service is paramount when choosing a custodian. Consider factors such as:

  • Dedicated relationship managers
  • Responsive technical assistance
  • Training and educational resources
  • Transition assistance for new Advisors

Look for custodians who prioritize your satisfaction and go above and beyond to support their partners.

→ Minimum Asset Requirements

Many custodians have minimum asset requirements that advisors must meet to establish a relationship. These requirements can range from $10 million to $100 million in assets under management (AUM). 

Advisors should ensure their practice meets these thresholds before considering a custodian. Smaller or emerging firms may need to seek custodians with lower minimum requirements to avoid potential barriers to entry.

→ Avenues of Investment

The range of investment options available through your chosen custodian is another important factor. 

Consider whether the custodial organization supports a diverse array of products, including equities, bonds, mutual funds, exchange-traded funds (ETFs), and cutting-edge alternatives that align with your investment philosophy.

A custodian with a broad selection of investment options can help Advisors build comprehensive portfolios that meet their clients’ needs.

→ Culture and Innovation

In today’s rapidly evolving wealth management landscape, embracing the newest technology plays a critical role in the success of any RIA.

Carefully evaluate the culture and capabilities of potential custodians, including their trading platforms, reporting tools, and integration with third-party software. Custodians with a focus on sustainability and diversification can provide you with the tools you need to enhance efficiency and deliver superior client service.

A Fundamental Partnership

Unfortunately, there’s no “one-size-fits-all” answer when it comes to selecting an RIA custodian — or a financial services recruiter. 

If you yearn to increase your revenue, enjoy a more productive and empowering environment, and put your values to work as an RIA or independent broker-dealer, we’re here to offer expert assistance.

For more than 31 years, TERRANA GROUP has been a rock in the highly dynamic financial services space, serving as an indispensable resource for Advisors and building deep relationships with the advisory world’s most sophisticated and notable firms.

There’s no time like the present to take the first step into an exciting future, so let’s start the conversation today!