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Pershing Rolls Out Pricing Options, Taps Replacement for Tibergien

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Five months after trading commissions for RIA investor clients fell to the wayside at Charles Schwab, TD Ameritrade and later Fidelity, Pershing jumped into the act on March 5 with a zero-commission model tied to a low-yield cash sweep program and the option for advisor clients to pay at least $25 a month with fees tiered to assets.

The news came just a day after Pershing announced that Ben Harrison will succeed Mark Tibergien as head of Pershing Advisor Solutions when Tibergien retires on June 1.

What does the pricing shift mean for advisors — grappling with Schwab’s impending purchase of TD Ameritrade and other disruptive forces, like newbie Altruist’s entry into the custodial space this week?

“What Pershing has done — at first glance — is innovative because it essentially gives advisors more options,” said John Furey, managing partner at the consulting firm Advisor Growth Strategies.

“There’s a flat fee if you want it, which is a bit different from charging basis points on assets,” Furey said. “Advisors will look at this and see opportunities to use it for some clients. Pershing is trying to attract large advisors and large clients [with this pricing model].”

Altruist CEO Jason Wenk, though, is more skeptical about the attractiveness of Pershing’s Netflix-like offering. “In regards to the subscription plan, I can’t understand why an RIA would find this desirable,” he said in a Twitter message. ” … changing how they make money but not changing how much they get; doesn’t seem like progress to me.”

A Test for Schwab?

Meanwhile, to win over TD Ameritrade RIAs concerned with what the acquisition could mean for them and their practices, Schwab says it has no asset minimums, no custody fees and “no intention to raise them.”

But that pledge could be sorely tested with Pershing’s move, says Tim Welsh of Nexus Strategy (and a former Schwab executive). Before its pricing announcement, Pershing had no official custody fees. “Now, they [have] explicit fees, with alternative pricing options,” Welsh said.

Schwab’s pledge “backs [it] into a corner by removing any ability to maneuver, because they can’t charge any custody fees and thus [can’t offer] flexible pricing options,” he explained. “And [Schwab has] no ability to increase revenues while … every other custodian is raising fees.”

Ultimately, Welsh thinks, “It’s only a matter of time until they break the pledge.” But Furey isn’t so certain.

In the short term, the consultant sees this as more of a strategic move on Pershing’s part than a disruptive one. “Pricing is just one lever,” he said. RIAs chose custodians based on a mix of pricing, products and technology.

As for how competitive it makes Pershing to advisors who use more than one custodian, a breakaway advisor from the wirehouses or other advisors focused on ultra-high-net worth clients might “see this as innovative and move a large account over” to Pershing, Furey said.

Could it change Pershing’s market share within the RIA space? “I’m not sure about that at this point,” he said. The Pershing move means investors could see a custody fee on their statements and ask about it. “It requires advisors to explain the economics [of the custody arrangement] …,” the consultant added.

“I prefer transparency, … which is more in line with the fiduciary [approach],” Furey said. “But it might be a hard translation for some” investors.

For its part, Pershing sees its options as “game changing,” according to Harrison, now head of business development and relationship management for Pershing’s RIA business.

“The custodial business-pricing model was ripe for disruption … ,” Harrison explained, “and this … begins to change the way in which the marketplace is oriented — from an environment in which the product selection of the advisor drives the economics of the custodial relationship and shifts it more to the value that the custodian provides, and [it] provides the investors with choice, transparency and a variety of investment vehicles.”

New RIA Chief

Harrison says growing this business “will be a big focus” of the firm’s future and that the goal of the business is to become “the largest and most significant player” in the RIA custodial space. The firm wants to capture a bigger share of the RIA custodial market and expand from a focus on professionally managed boutique advisory firms to a “broader set” of firms, including “more emerging firms.”

Asked for his definition of “emerging firms,” Harrison said it’s not related to asset size but to a firm’s characteristics — firms that have the capacity and the desire to grow and evolve from a business to an enterprise and that are committed to growing with Pershing.

Pershing, a subsidiary of Bank of New York, says it now serves about 725 firms with total assets over $800 billion at the end of 2019 (before the recent market correction) and is the third-largest custodian for RIAs in terms of assets after Schwab and Fidelity, and fourth largest in terms of advisory firm clients.

“The economics in the custodial marketplace is starting to evolve” and “the business is probably ripe for a new pricing model,” Harrison said. The focus on custodying products like ETFs and equities that advisory clients own could evolve to a focus on total costs of ownership, not just products, he added.

Also, in a world where RIAs need to deliver more value to justify their fees — they have been a fairly constant 80 basis points over the last 10 years — firms have the opportunity to think not only about how they price their services but how they purchase services from custodians, says Harrison. “Now the cost is borne from investors’ portfolios. I don’t know if that has longevity.”

It’s not clear that assets-under-management fees need to change or just be separated from custodial fees or whether advisory firms will absorb some of the custodial fees if they instead charge flat fees to investors, he says.

No matter how fees evolve, he says, Pershing will continue its position in the custodial marketplace as a B-to-B firm serving advisors, which differentiates it from retail-facing firms like Schwab. “We’re in a category of our own … the brand behind the brand.”

Harrison has been with Pershing since October of 2006. Earlier, he was TD Ameritrade as a vice president of RIA sales for over three years and in RIA relationship management and product development for a similar amount of time for TD Waterhouse, which he joined in 1998.

Janet Levaux is editor-in-chief of Investment Advisor. She can be reached at [email protected].