The Vanguard Group announced March 6 that it plans to stop providing custody services to RIAs by year-end, and has already set up a special program to help advisors shift their assets to TD Waterhouse Institutional Services. Vanguard now says it plans to focus on providing "enhanced investment support to registered investment advisers."
TD Waterhouse stands to pull in a sizeable chunk of dough--to the tune of roughly $5 billion--if all of Vanguard's 400 RIA clients decide to move their assets to Waterhouse.
Martha Papariello, principal, Vanguard Institutional Investments Group, told Investment Advisor "that the service model for custody has changed and improved a lot over the years, and [Vanguard has] been faced with a growing set of expectations on the part of clients. I don't think we've met some of those expectations when it comes to the operational aspects."
Trying to compete with the more dominant players in the custodial game has become a daunting task for the Valley Forge, Pennsylvania-based mutual fund firm. "Certainly there are some great providers in the custody market, and we certainly have a need to step it up [in providing custodial services] or stop providing the service," she says. "To be stuck in the middle is not a great place to be."
Going forward, Vanguard plans to continue to improve the investment-related support it provides to RIAs, Papariello says. "We will be more focused on finding ways to take our wealth of experience in investor education and bring it to bear in a way that's helpful and productive for the RIAs," she says. "We're an investment management firm first, and we need to stay focused on offering capabilities relative to that core strength."
Papariello says Vanguard decided to align with Waterhouse because the firm would make RIAs' "transition as hospitable a process as possible," and Waterhouse was willing to continue to provide RIAs with services like Vanguard's money market funds and access to its Admiral class shares.
Thomas Bradley, president of TD Waterhouse Institutional Services, said in a prepared statement that Waterhouse "will be dedicated to making the custodial transition as seamless as possible for advisers and their clients." Waterhouse plans to offer a "specialized suite of products" and a discount on Vanguard mutual fund transactions to all advisors who move assets to Waterhouse, Bradley said.
Advisors that wish to transfer their assets to Waterhouse should call Vanguard at 800-984-5792. Vanguard said its current custody clients have been notified of the change.
How do advisors feel about Vanguard ceasing its custodial services? "There's a mixed reaction," Papariello says. "Some [advisors] are not surprised at all, and others are thinking about how they're going to make the transition occur and the work that's involved."