Where do advisors go for custodial services when they’re new to the profession or if they have only $1 million to $25 million in assets? That question is on the minds of a growing number of advisors. The good news is there is help to be found.
Ron Pearson, a planner with Beach Financial Services in Virginia Beach, Virginia, says he mentors quite a few nascent fee-only planners, and he’s finding it increasingly “difficult to suggest a custodian.” Pearson says he eschews recommending Schwab because of its high costs, and is leery of pushing Fidelity because of the brokerage firm’s reluctance to serve him when he was just a babe in the planning woods in 1994. Back then, “Fidelity said ‘We’ll be happy to serve you as long as you sign this commitment that you’re going to have $3 million in our accounts within the first year,’” Pearson says. “And I said, ‘I’m a new guy. I have no idea what I’m going to have.’”
Jay Lanigan, executive VP of Fidelity Investments Institutional Brokerage Group, and Tom Bradley, president of TD Waterhouse Institutional, both say their firms do not require advisors to meet an asset threshold. However, both firms would prefer to deal only with advisors who are serious about growing their assets. “We’ll take anyone on,” Bradley says, “but we don’t want the advisor with $2 million under management who’s managing some money for family and friends and does it on the side.” Lanigan states that Fidelity wants “full-time” advisors “willing to grow their businesses.”
Fidelity and Waterhouse both offer special programs for small advisors. Fidelity’s Growing Advisor Program provides custodial services to firms with zero to $25 million in assets, and Lanigan says Fidelity has 18 employees dedicated to supporting the business. A Fidelity spokesperson says “Fidelity’s business is based on transaction volume, and it does not assess any fees for its custody and trading platform outside of the transaction costs.” While Waterhouse’s service doesn’t have a formal title, the brokerage firm levies a $600-per-quarter fee to advisors with less than $3 million who custody assets with the firm. That fee allows them to access Waterhouse’s entire spectrum of custodial services.
Charles Schwab Institutional has historically steered clear of providing custodial services to small advisors, says President Deborah McWhinney, because they’re expensive to serve. “Schwab’s service [level] is so high that it’s more expensive than the competition,” she says. “We’ve kind of welcomed everyone in the past, but we really have to make certain we’re not [neglecting] our big clients that need to grow.” Schwab will offer a service for small advisors at some point, she promises, “We’re looking at what Fidelity and TD Waterhouse have done; they’ve set a high bar,” she says.
Small advisors can also get custodial help from San Francisco-based EAInvest. Chuck Siegal, VP of sales and marketing, says through EAInvest’s partnership with Advent Software “we can, in exchange for advisors working with us, discount Advent’s Office Essentials program down to free.” Siegal says EAInvest can offer Advent’s portfolio accounting package, Axys, “which includes the software, installation, service, and two data feeds from two separate custodians for an incredible price. If you custody or manage less than $50 million in assets, the price is $2,500 in the first year, and then $1,500 thereafter getting slightly less expensive as assets increase.” Siegal says EAInvest can slash the Advent package “down to free” for advisors who custody more than $30 million.