Time to Change Partners?
Change. Clearly, it’s the one thing which remains constant. When I started this journey over a year ago, the decision I had was to align with an independent broker/dealer or become an RIA. I chose the latter. In retrospect, I’m very glad I did. I also made the decision to custody my client’s assets at one of the largest firms, partly because they had great name recognition. Since I was starting from scratch, in terms of assets under management, I needed a custodian with a lower AUM minimum. Well, this firm’s AUM minimum was reasonable and within seven or eight months, I had exceeded it. I was actually over their minimum by a few million dollars when they made a decision to raise their minimum. Their new minimum was double the old one and once again I was under some pressure to get to their new benchmark. The problem is, for every dollar I was bringing in the door, given the current bear market, I was losing ground.
Even with the bear market, I’ve remained over their original minimum. Now comes the punitive part of the story. If I am under their new minimum on a calendar quarter basis, I will be charged a fee of $1,200 for that quarter. For a newer business, this is somewhat significant. So I am left with a choice: to stay and pay their fee for a few quarters until I reach their minimum, or leave and find another custodian. I am now searching for a new custodian.
I’ve found there are several good choices in the marketplace. Now I have to perform some due diligence and decide which custodian I will use. Most of them have the same amount of product offerings, but there is some difference in the amount of their ticket charges. For mutual funds my current custodian charges around $35 to $44 and I am finding that these other custodians charge $24 or less. It’s too early to elaborate more on this as I am only in the beginning stages of this process.
Perhaps you wouldn’t mind sharing the name of your custodian and whether it makes sense for a relatively new and small advisor to partner with them, or not?
Thanks in advance for your input.
Check out Shareholders Service Group, http://www.shareholdersgroup.com. They have worked out well for our RIA with a broad fund selection, personal and very responsive service when needed, and work well with RIA’s of all sizes. After a lengthy DD process, we started with them earlier in the year and are very satisifed.
Our firm clears through Cadaret, Grant and Co., out of Syracuse, NY, which in turn clears through Pershing (#1) and through Schwab. We chose to work through TIMS,i.e., Cadaret, Grant’s RIA set up. However, CG welcomes RIAs. Give thought to Commonwealth in MA, or Cambridge in IA. Both have reasonable minimums; concentrate on fee based business and love RIAs. Both are broker of the year winners.
I’d recommend TD Ameritrade. I’ve been with them for over 12 years. I started when it was still Jack White and Co. They have been excellent custodians, and have never requested an asset minimum or requested a fee for holding assets. A primary reason I chose them in the first place. I’m sure they would like me to increase my account balances, but in this market, it’s been a hard thing to do. Good luck.
Mike
Given what you and your clients have been through over the last month, putting yourself (and them) through a custodian change is almost unbearable. I would strongly suggest that you approach your current custodian and cut a deal to waive the new minimum for six months or so. Tell them what you are contemplating. Propose a time frame over which you intend to achieve their new minimum and suggest that you will pay the waived fees if you don’t reach your AUM goal in that time frame. If your business has shown steady growth over the life of your custodial relationship they would much rather give up the $2,400 you will pay over the next two quarters than lose your business.
Mike
Our firm uses TD Ameritrade due to their lower fees, personal/professional service and technology. I think having to pay for a minimum amount of assets is ridiculous. When we were new, TDA (used to be Waterhouse back then) was one of the few custodians that would work with us. Now that we have a sizeable asset base, I would have a hard time moving to another custodian. Also, I think Tom Bradley (President, TD Ameritrade Institutional) does a good job representing the RIA industry. Hope these comments help. Good luck!
David
Mike, I went with Ameritrade in 2003 when Vanguard got out of the business. I had only around $6-7M AUM at the time but Ameritrade was happy to have me and I have been pleased with the service ever since. They were the best with Advisors still building their firms.
Why on Earth would you pay anything at all for custody or to buy or sell a mutual fund?
I am wondering why you aren’t reconsidering an Independent Broker Dealer?
It seems that having a custodian relationship is an oxymoron… they have no commitment to you and your practice… have adequate assets (defined by them in an arbitrary way) or pay pay pay.
Find a good BD
Hi Mike,
I was reading your article and thought that Rydex Financial Services might be a good home for you and your business. Please visit our website and contact us today!
Mike,
I hope you get to see this before it gets sent to the blog – I mean to send this to you and not post it, but I don’t see an alternative way to contact you.
Ensemble is a comprehensive back office and outsourcing firm supporting independent advisors. Advisors can custody on Fidelity’s platform through us, but without all the requirements and without most of the limitations IWS places on you. Our ticket charges are $25 for the most common types of securities, and it can be lower depending on the mix and volume of business an advisor does with us. We do not have a minimum asset requirement.
And then there are all the other support services you can get through us – portfolio reporting, virtual staffing, financial plan preparation, and more. but my intent was to let you know there is an alternative way to get a custodian that is especially useful for the young practice. I’d be happy to share more about it with you if you’re interested in talking; just drop me a note.
Mike,
You have had a couple of positive opinions contributed so far about TD Ameritrade. My experience to date has not been so good.
I’ve been in business for almost 10 years now, and from the beginning Fiserv had been my custodian. TD Ameritrade recently acquired their custody business, and I have been less than pleased with the service so far. TDA’s frontline customer service staff has been wonderful, but deeper into the org chart I have been met with indifference and rigidity. I’ll be glad to elaborate if you want to contact me directly at scorefinancial@sbcglobal.net.
Furthermore, several of my clients have complained to me about TDA’s statements being difficult to follow.
Needless to say, I am exploring my options as you are.
Hi Chad, John, Richard, Scott, David, Ron, Kevin, Paul, Mike, Stephen, John (sounds like Matt Damon naming his fictitious brothers in “Good Will Hunting.)”
Thank you all for your comments. I have indeed spoken with Fidelity and they seem to be uninterested in forging a compromise. So it seems as though I must move on. So far, I have viewed web demo’s from Shareholder Services Group, Scott Trade, and Trade PMR. I’ve yet to view the web demo for TD Ameritrade but plan to do so in the very near future. After speaking with a few others, I’ll narrow my choices down to two. Then I plan to get better acquainted with both before making a final decision. So far, I like Trade PMR, but am still open to others.
If you have any further suggestions, please let me know.
Thanks!
Hi Mike – Check out Shareholder Services Group for your custody needs. They seem quite friendly to “start-up” situations.
http://www.shareholdersgroup.com
DD