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Practice Management > Building Your Business

7 Emerging Challenges for Advisors, and How Custodians Want to Help

By Victoria Zhuang

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The war for market share among advisor custodians is one of the hottest conflicts in wealth management today, with trillions of dollars at stake for all parties involved — the custodians, the advisors who rely on them to safeguard client assets, and their collective clients.

But at a recent industry event, several of the biggest names in RIA custody came together to highlight the biggest issues to watch. Leaders from custody giants Charles Schwab, Fidelity and Pershing, as well as relative newcomers Goldman Sachs and Altruist, appeared on stage at the National Association of Personal Financial Advisors, or NAPFA, Large Firm Forum, which took place last week near Phoenix.

“Their growth and our growth are tied together, and it felt in listening that we really are partners, despite our different set of needs,” advisor Cheryl Holland said of the custodians in an interview after the panel discussion. 

A group of six executives from advisor custodial firms at a meeting in Phoenix on Feb. 20, 2024 Cheryl Holland (right), a CFP and founder of Abacus Planning Group, moderated the panel. Speakers included Brad Losson (left), managing director at Charles Schwab; Richard Lofgren, managing director at Goldman Sachs; Jason Wenk, founder and CEO of Altruist; Angie Popek, SVP and regional managing director at Fidelity; and Ben Harrison, managing director at BNY Mellon |Pershing. Credit: Victoria Zhuang

Holland, a CFP and founder of Abacus Planning Group, moderated the panel. Speakers included Brad Losson, managing director at Schwab; Richard Lofgren, managing director at Goldman; Jason Wenk, founder and CEO of Altruist; Angie Popek, SVP and regional managing director at Fidelity; and Ben Harrison, managing director at BNY Mellon |Pershing.

Schwab leads the pack in RIA custody, according to an industrywide survey of 2,917 advisors published earlier this month by T3 and Inside Information. The study found that Schwab occupied around 38% of the RIA market, followed by Fidelity, Pershing, SEI and Altruist, and then several other firms including Goldman, respectively.

Advisors who custody with the Big Three, especially at Schwab and Pershing, were most likely to say they planned to either move custodians or add another one. (Schwab, Fidelity, SEI and Altruist were all among the sponsors of this year’s NAPFA conference.) 

The event was targeted for fee-only fiduciary advisors, whose firms generally had at least $1 billion in assets under management, or were approaching that in five years, or had at least 20 employees. 

Here are seven emerging challenges facing advisors — and how custodians want to help.

1. There’s a massive shortage of next-gen advisor leadership.

Lofgren said what concerned him the most was the problem of bringing in younger talent to help with succession as the industry’s aging workforce approaches retirement. 

If advisors can’t find enough qualified talent, more may be pushed to sell their firms, Lofgren said. “We look across the industry, the average age of advisors is 49 years old. What are we doing to bring in the next generation?” he said. 

A 2022 Schwab study found RIAs would need to hire over 70,000 employees, assuming no departures, over the following five years to maintain their pace of growth, Losson said. 

Schwab is investing in young talent sourcing and matching to aid RIAs in long-term growth, he said. “We’re active in college and universities, endowments and grants, and trying to help create that talent pipeline for all of you … I know my colleagues here are active as well,” he said of the other panelists.   

2. Training new talent is an issue, and custodians want to help.

Fidelity is offering practice management, benchmarking studies, tech, “thought leadership” and consulting resources, Popek said, to help advisors with talent development and capacity building once they make that hire. 

It also launched an “RIA staffing tool,” Popek said. The tool helps advisors “so that you can measure your staffing levels and productivity versus your peers and make informed hiring decisions.”  

“Think about diversity in your hiring approach so that your associates are representative of the clients that you’re serving now and in the future,” Popek said.

She added that more firms could benefit from sourcing talent broadly — drawing from career changers, veterans and boomerang workers who are returning to the workforce after caregiving or another career break.  

“Some firms are even getting creative and thinking about part-time solutions as they look to attract some of these associates,” she said. 

3. Advisors are stalling on organic growth.

Frequent headlines about inorganic growth in the industry mask an unsettling reality of sluggish organic growth for many practices, the panelists said. 

“The vast majority of firms are not growing significantly. Organically, it’s low single-digit growth,” Harrison said.  

4. Advisors need to outsource more.

Advisors are often distracted from spending time productively with clients, Harrison said. To outsource non-client-facing work, Pershing is investing in “human capital” staffing to support advisors, as well as productivity tools, he said. It generally focuses on firms with $1 billion or more of AUM. 

Goldman Sachs also positions itself as outsourcing support, targeting RIAs moving upmarket. Its custody arm sells bespoke solutions to advisors whose clients have “significant” net worth and want to invest in more diverse asset classes like alternatives, Lofgren said. 

Wenk said that his firm aimed to help RIAs in a cost-saving manner by offering integrated automation of services like cash management and minimizing taxes for every client at scale. 

Bringing on more assets through tuck-in acquisitions “has a point of diminishing returns,” so at some point automation is a must, he said. 

5. Private equity-backed firms are making it harder for small RIAs to compete, as clients demand more services.

RIAs are being squeezed both by clients who demand more services and customization, and huge national competitors like Creative Planning, who are expanding into an advisor’s local market, Losson said. 

“This is creating a very rapid canyon or schism in the industry,” he said. “Much of that is fueled by a new party to the marketplace, which is private equity and sometimes venture capital … It’s a very, very different marketplace than it was when just saying that ‘I’m an RIA and a fiduciary’ helped the day, back 10, 15 years ago.” 

But Schwab is attempting to keep pace by investing in customization at scale for clients. “Obviously, one of the reasons we made our TD acquisition is we believe that scale creates a long-term competitive advantage in this marketplace,” he said.

Schwab wants to support advisors to focus on growing locally if they so choose, Losson said, instead of feeling driven to scale with M&A due to the fear of missing out. “Our economic model also has, as you all know, a pledge in the marketplace that we will not charge a custody fee.”

Schwab also plans to become a supported independence player and develop upmarket resources in areas such as asset management, banking and lending solutions and even private banking and trust services, Losson said. Clients coming into more wealth with an RIA would then feel happy staying, even as their needs get more complex. 

6. Lower fees won’t cut it to win new clients.

Across the industry, advisors have been attempting to lower fees by offering discounts even as many feel the need to offer more services, Popek said. 

“Larger firms are offering discounts more frequently and deeper discounts,” but that can easily become unsustainable, she said. 

Wenk agreed, adding that clients don’t necessarily go for the provider with the lowest fees — they care most about user experience, he said. 

“We’re lying to ourselves if we think we’re delivering good user experience” compared to newer players like Robinhood, he said. “Their app is better than all of our apps by orders of magnitude.” His own son, as a college student a few years ago, had never heard of any of the custodians in the room but was familiar with Coinbase and Robinhood. 

“What’s really wild is, he thought Betterment was kind of like old school,” Wenk said of his son, to laughter from the audience. (By RIA standards, Wenk said in an email later, he thinks Betterment has a great design.) 

“Just go challenge a young person” to share what truly cutting-edge UX looks like, he said. 

7. Advisors want more access to client data.

Holland referenced comments in a talk earlier that day by industry consultant Joel Bruckenstein, CEO of T3 Technology Tools for Today, reflecting on who truly owns client data: the advisor, or the custodian? 

“Sometimes I feel there’s a tug of war,” Holland said. 

The panelists acknowledged that while custodians at large have legal responsibilities to protect client data in their platforms, they could share data more with advisors and provide more access to information about client data that could inform the advisor’s practice. 

“I think that’s a next really big opportunity for all of us as custodians, is to take this shared data, and find a way to empower you with the data that we see,” Losson said. 

Wenk added that advisors should ask for not only one or two years of their data, but all years, from their custodians. “I absolutely will never hold people’s data hostage, because I hated that as a practitioner” and former RIA leader, he said. “If you’re only getting one or two years of your data, it’s not your data. And fundamentally I have a problem with that.” 

(Image: Adobe Stock)

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