Vanguard Pulls Plug on RIA Custody Service

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.”