Less than a year after a major reorganization of Fidelity Institutional’s clearing business, Mike Durbin, president of Fidelity Institutional Wealth Services, reports that the RIA custodian is doing quite well, thank you, with total client assets under custody of more than $750 billion as of year-end 2013. In that year, 109 net new RIA firms, with an average of $127 million in assets under management, chose to custody with Fidelity IWS.
In an interview Thursday, Durbin noted that the data from new firms doesn’t include RIAs or registered reps who joined an existing RIA firm. “It’s a good business,” he said, helped by “the prevailing tailwind in this broadly defined independent space,” but also by “great new net asset flow from existing” Fidelity IWS RIA firms, along with new firms that are “being created and/or joining us.”
Admitting that “it helps to have an S&P at 1,900,” the trends pushing the independent space continue, he argues, notably “bigger and better RIAs getting bigger and better.” While not that long ago it was “rare to have a $1 billion RIA, now there are more and more” achieving that benchmark in AUM through organic growth and expansion either geographically or through mergers and acquisitions, producing a “growing cadre of pan-regional” RIA firms.
That overall growth in the industry, and Fidelity’s investment over the past few years in “reinventing” its technology platform and service offerings, “allows us to be more strategic with our clients,” Durbin said, helping in particular firms around the $500 million mark to leap over that hurdle where too often “the principal wears too many hats.” Instead, the fastest-growing firms, which Fidelity calls “high performers,” are being run as businesses, with a “clear segregation of duties and clear processes,” creating “real firms with real management teams that can provide leverage” to that overworked principal.
While Durbin says “we have a very strong base proposition for all our clients” around brokerage and custody, operations and service, the notion of keeping an eye on the bigger, fastest-growing firms “allows us to provide our more human-capital-intensive programs” to those high performers, such as practice management consulting or succession planning or even M&A financing through its partnership with Live Oak Bank. “We want to earn a seat at their conference room table with them,” he says of the fastest-growing firms.
There’s another angle to what Fidelity IWS does for its clients, Durbin says, and that’s where so-called robo-advisors come in. “Our role is to understand the landscape and educate our clients” about trends and technology, which is reflected in a number of initiatives at the firm. They include the launch of the physical and virtual Office of the Future (see article by Danielle Andrus on ThinkAdvisor). Fidelity also held a summit — Emerging Affluent/Digital Advisor Day — in which certain Fidelity clients gathered with “digital advisor,” or robo-advisor, technology pioneers “to explore how our clients can work with them or even create their own offering” along with options to leverage technology to attract and efficiently serve certain underserved client segments. In that vein, during its recent Executive Forum conference, to which Fidelity’s top broker-dealer (National Financial) and IWS (RIA) clients are invited, a poll of attendees focused on web-based digital advisors. It found that 74% saw the rise of robo-advisors as a “positive industry trend that is here to stay,” though 54% said that “digital advisors cannot replace the human element of advice.” However, only 13% of the executives surveyed said they felt “very informed” about robo-advisor models.
Durbin was quick to point out that clients at the Executive Summit tend to be more sophisticated, making it unsurprising that they “see the trend around the digital advisor” but also that they expect Fidelity to help educate and guide them around “new technologies that should be leveraged by us as their service providers.” However, the attributes of robo-advisors — a user-friendly interface, unbundling of services, aggregating client data — suggests how advisor technology should evolve to help attract “these Gen X and Gen Y cohorts.”
So Fidelity’s role, Durbin concluded, was to help its clients “learn a lot more” and to help them “pivot to embrace these technologies,” and to determine “which ones can be a solution for them and which we should mimic.”
Durbin points outh that “if these technologies are embraced the right way, a broader segment of the U.S. population will be able to get advice,” and that we may well be “at the early stages of a virtuous cycle in getting people to be prepared for retirement and financial independence.”