Are You Getting the Most Out of Your Custodian?
It’s one of the most important decisions a registered investment advisor (RIA) makes: Choosing the custodian to hold client assets and securities holdings.
“The custodian selection process is a key step in starting an RIA firm as the custodian will become a vital business partner and may directly interact with the RIA firm’s clients as well,” according to RIA In A Box.
The custodian sends statements to the RIA’s client. The custodian oversees every securities transaction, posts dividends and pulls fees out of accounts
“Nothing touches the advisor’s clients more seriously and more often than the custodian,” says Nicholas Stuller, author of TRUTH SHALL SET YOUR WALLET FREE: Secrets to Finding the Perfect Financial Advisor.
But given the decision’s importance, what should RIAs consider when they decide which custodian to work with?
We talked with Stuller, who has been in the industry for over 30 years and is a veteran of one of the major RIA custodians, about just that question. Here are some of the things he says an RIA should look for in the custodian they choose.
Is your custodian large enough?
RIAs should choose a custodian that inspires confidence and demonstrates a strong, obvious commitment to working with RIAs. After all, their clients will be in frequent contact with the custodian and should be comfortable with them.
“The custodian can really weigh heavily and impact the advisor’s relationship with clients,” says Stuller. “It should be a custodian of the appropriate stature that’s going to support the relationship. Because the last thing an RIA wants is the client going, ‘Well I never heard of that firm.’ You don’t want to be in that situation.”
Further, the custodian should be all in when it comes to working with RIAs.
“In general, an RIA should look at a custodian and first and foremost, make an assessment: Is this custodian significant enough in size and committed to supporting RIAs?” Stuller says. “Because in some cases there are firms that will take an RIA’s business but are not really committed to it.”
Does your custodian have the right tools?
Different RIAs, and their clients, have different needs. So it’s important that a custodian have the right tools, such as access to all securities, to support an RIA’s specific requirements.
“Not every custodian offers services that are the best use for every type of RIA,” Stuller says. “There are specialty RIAs that have maybe a different type of security selection, a different type of process. You want to make sure there’s a match there because, after all, the custodian is the most important vendor to an RIA, over and above everybody else.”
It’s crucial that the RIA’s most important vendor operationally match the RIA’s business.
Does your custodian offer sufficient support?
Another important aspect of the right custodian is that they offer sufficient support to the RIA and the RIA’s clients, says Stuller.
“It’s not just this operational thing that you plug in and you never talk to anybody,” he says. “All kinds of things happen. Your clients have questions. There’s all kinds of things that happen in life and you just need to know that your custodian has support infrastructure sufficient to support your business when you need it.”
Stuller says he’s seen personally times when clients have had questions about unusual securities and it was necessary for an RIA to call somebody at the custodian.
“Can they pick up the phone? Can they handle it? Can they accommodate?” he asks.
Ultimately, you want a custodian whose staff feels like an extension of your own office. A good custodian is one you and you clients can lean on for support and know they’ll be available, accessible and attentive.
Is your custodian a supporter, or a competitor?
Some custodians have their own advisory services. Whether that’s competitive or not, it can be viewed as competitive, Stuller says. While some RIAs may not be bothered by that, others are.
There are custodians who have long-standing retail services, and, says Stuller, “Accidents happen.” At times a custodian may accidentally solicit an RIA’s client.
“There are advisors who get really upset when that happens,” Stuller says. “You want a custodian that is going to support you in a non-competitive way.”
Does your custodian deliver the “extras?”
As the role of technology grows in the financial space, it’s more important than ever that a custodian be current. They also need to be able to provide extra services depending upon the type of RIA and RIA client.
“There are myriad technology services that custodians have these days—connectivity to third-party software, asset allocation platforms, the ability to custody unique assets that a higher net worth and ultra-high net worth clients have,” Stuller says.
He adds that some top custodians now provide support services such as marketing and consulting, or even educational resources to help you explore industry trends and sharpen your knowledgebase.
“Really, today’s custodians in some cases can be viewed as consultants to the advisor to help them grow their business. There are some custodians that will offer help getting registered, make introduction to marketing consultants, practice management consultants, benchmarking surveys. It can really run the entire business development gamut,” Stuller says. “Depending upon the advisors that could be no worth at all. For other advisors, that could be the most important thing.”
What U.S. Bank offers
U.S. Bank has a dedicated team serving the needs of investment advisors. Among the services USB offers:
- A team that is designed to feel like an extension of an RIA’s staff
- Rigorous quality control
- Trading efficiency with block trading capabilities
- Private banking services
- Ability to act as a corporate trustee
- Ability to hold a wide variety of alternative investments
©2018 U.S. Bank 071218. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness.