It has been 99 days since the announcement of the Schwab-TD Ameritrade deal, and while there appears to be a long regulatory approval road in front, we have subsequently experienced the Morgan Stanley – E-Trade announcement and Schwab made another acquisition of an asset manager, Wasmer Schroeder. The pace of change continues to accelerate even with fewer custody options.
Fidelity and Pershing seem to be the best potential beneficiaries although both have quietly raised their AUM minimums approaching $400M. In speaking with a number of clients at Inside ETFs and National LINC 2020, advisor clients remain optimistic and focused on gaining the synergies of two major custodians although every announcement adds a tinge of anxiety. It has become a buyer’s market, even the acquisition firms have become more targeted with their plans and have been turning away RIA owners looking for liquidity and succession options.
So what does this mean for the advisor?
Our opinion hasn’t changed: the bar was just raised higher to work with Schwab. Now with the consolidation of other custodians, the options continue to narrow. Schwab is establishing a referral network for advisors to approach a merger partner. With recent market aberrations, the smaller firms are more susceptible to a shock or market correction.
Notwithstanding, advisory firms who believed that they were getting the best of two custodians into one should be reviewing their business and technology plan and discussing with their study groups to better optimize workflow. Fidelity and Pershing have higher AUM minimums and have plans for implementing platform fees to approaching RIAs looking for new custody destinations. $400M AUM is the new norm.
A custodian change is a risk event for the RIA owner which requires planning, and as we have said, looking ahead is paramount for making the best decision for your firm. Investment professionals are looking for better solutions and different perspectives for independent, unbiased research whether developing models or evaluating prospective portfolios for clients being onboarded.