Look Before Switching

Switching custodians. It’s a decision that many advisors have already made or may make in the future. One of the most common reasons advisors choose to switch is because they’ve become dissatisfied with their custodian’s services. Marty Watkins is one such advisor who decided to transition his clients’ accounts from SEI Investments to Fidelity Institutional so that he could offer his clients a broader array of investment options.

When contemplating how to make the transition, be aware that there are myriad steps to take and issues to consider before jumping in feet first. The most important question, naturally, is whether the move will ultimately benefit your clients. Watkins, chief operating officer of UMA Financial Services in Salt Lake City–which manages $300 million for physicians who are members of the Utah Medical Association–says his planning firm was utilizing portfolios designed by SEI, but he also wanted to provide portfolios offered by other fund families. “At SEI Trust, they really want you to use their portfolios,” he says.

While SEI offers approximately 900 funds from other fund families, Watkins says SEI would not allow UMA to move clients’ accounts into competitors’ products while using its platform. SEI’s platform “didn’t have enough flexibility so that you could change investment content providers” in a matter of days, not months. That’s why Watkins thought it was best to move to a custodian that would allow him to move clients’ accounts, and could handle moving accounts quickly between mutual funds from various companies on UMA’s shortlist–like Russell Investments and Vanguard, as well as SEI.

Steve Onofrio, national sales manager for SEI Advisor Network, notes that “the SEI platform was developed as a strategic business solution for advisors and not just for transactional purposes.” Onofrio says that in fact there is a “great deal of flexibility built into our platform. For example, we accommodate outside funds as well as securities. However, this flexibility was developed with the same strategic objective in mind and is an option primarily reserved for our select advisors who have made a commitment to grow with us.”

Onofrio adds that “SEI is committed to acting as quickly and efficiently for our clients as possible. Generally, most transactions can take anywhere from a few minutes to a couple of days, depending on the nature of the transaction. However, when parties functioning outside SEI’s platform are involved, although we free up requested assets as quickly as possible, advisors could experience longer wait times as a result of the other parties involved in the transaction.”

When it came time to move his clients’ accounts–all 1,400 of them–Watkins chose to transition them one client at a time, rather than the traditional method of moving all of the accounts en masse by a certain date. Of course, moving the accounts one by one meant it would not only take longer, it would also require face-to-face meetings with UMA’s 500 investment clients. While it’s been “more difficult” for UMA’s staff to shift clients one by one because “it takes time, preparation, and follow-up,” Watkins says it gave him time to explain to each client why he was moving their accounts to a new custodian. Plus, the more personalized approach of moving accounts solo has been good from a profitability standpoint. “It’s been tremendously rewarding having those meetings because you often find more assets to manage, and it’s been a very beneficial process,” Watkins says.

Three Benefits to Clients

In the year and a half that it’s taken UMA to transition its clients’ accounts from SEI to Fidelity (UMA expects to have all client accounts moved by March), UMA pulled in $45 million in new money–with most of it coming from existing clients. “Clients appreciate that we’re going through a process to put them in a better position.” UMA didn’t lose a “single client in the transfer,” he says, “because we made it clear that the motives were positive.” Watkins explained to clients that they’d reap three benefits from the move. First, by using Fidelity, UMA could switch a client’s portfolio from one fund company to another in a matter of days, not months. Second, UMA was able to find portfolios at Russell Investments that were less costly than portfolios at SEI. Finally, “Fidelity had more products and services available than SEI Trust.”

Another plus was the fact that “Russell has an arrangement with Fidelity where all of the firm’s products can be traded without transaction costs on the Fidelity platform, and on that platform, performance reports would be provided,” Watkins says. “If we went to someone else, performance reports would not have been provided.”

While UMA’s transition of client accounts has been successful thus far, the process hasn’t been without its complexities. UMA began its transfer process in February 2004, when the U.S.A. Patriot Act was being implemented. This meant that the forms UMA was required to fill out containing clients’ information kept changing. “Our forms changed four times during the transition,” Watkins says. “That made it particularly difficult.” But Fidelity and Russell stepped in and helped UMA prepopulate all of the forms each time the Patriot Act changed them, he says.