The independent advisor channel is still in its infancy and, a decade from now, we will probably look back at the choices advisors have today for custody, financial planning, and portfolio management as limited. But independent advisors are getting more choices and better ones.
Over the past few weeks, I was lucky enough to see some long-term trends in the independent advisor business unfold right before my eyes.
First, I interviewed John Tyers about Bear Stearns, a venerable Wall Street company that is entering the RIA custody business. Then I got a demo of Investment Advisory Network’s new portfolio management and reporting platform. That was followed by a call from Herzl Hyton of Optima Technologies, who told me that his fledgling portfolio management and financial planning software company had struck a deal with H&R Block and would be profitable by year-end. Finally I talked to Bob Curtis about technology that may revolutionize the way advisors help people.
A New Custodian
Bear Stearns, which has a reputation for toughness and formidable institutional trading, and is the second-largest brokerage clearing operation in the nation, is actively bidding for business with RIAs who manage money for high-net-worth individuals.
A recent study sponsored by Charles Schwab found that advisors can cut expenses substantially by using only one custodian, but many advisors still want choices in custody. The big custodial firms are as loyal to advisors as their profits dictate. The advisor custody service is one of many competing lines of business that the big firms must consider in figuring out where to invest resources.
Housing your assets at more than one custodian may not be the most efficient way of running your business, but for many independent advisors it is a cost of doing business that they accept. It’s an insurance policy. Advisors like choices, and that’s why Bear Stearns’s entrance is noteworthy.
Over the past year, Bear Stearns Advisor Services (BSAS) has quietly been building a sales force and technology platform that is now in place. “We had the makings of an RIA business when we started four years ago, because we already had a hedge fund prime brokerage business,” says John Tyers, who heads up sales for BSAS. “Two years ago, the head of our clearing business made the decision to get into the RIA custody business formally and get our own business development team.”
Tyers says BSAS has lured $30 billion in RIA assets from 70 firms, most of whom have relied on Bear’s clearing operation. However, some of it is new money garnered by a sales team of five reps. The focus is RIAs with at least $100 million under management.
“We have a large clearing firm that truly wants to be in this business in a leadership position,” says Tyers. “We don’t want to be a leader in terms of the number of firms we work with. Our target market among the 10,000 SEC-registered firms is the 2,000 to 2,500 RIAs with more than $100 million in assets whose main business is managing private client money.”