Adding a Custodian to your Registered Investment Advisor business

More and more registered representatives are seeking to expand or transition into the registered investment adviser, or RIA, sphere than ever before. While some financial advisors are looking to relieve themselves of FINRA’s increasingly harsh sanctions and its badly-flawed arbitration process, others are simply looking to make the addition of an RIA to their existing business as a broker. 

Existing RIAs are also continuously evaluating their relationships with custodians, either to add to their existing custodian relationships or to replace a current custodian with one that is more optimized to the particular needs of their firm and their clients. An analysis of custodial relationships should be done at least annually as part of the Best Execution review. 

The role of a custodian for an RIA business

With the increase in the number of RIAs comes an increase in the demand for qualified custodians — those forming new RIAs must find at least one custodian, and existing RIAs who want to offer more options to their clients often seek to add additional custodians. Naturally, the custodian’s investment strategies and offerings are a key consideration in choosing which custodian or custodians is the best fit for an RIA’s specific clientele. However, there are several other factors to consider in making the determination of which will best serve an RIA’s business. 

First, the RIA’s expectations for the custodian’s role in its business should be contemplated. As every custodian can handle bookkeeping and transact trades, it’s the custodian’s features beyond basic operations that play into the evaluation. Options vary from large, established custodians that offer a wide range of services to smaller custodians that provide more specialized services. The level and type of support offered by custodians vary, as well, with some providing a general phone number and support staff on an as-needed basis, and others providing a specific support team of individuals dedicated to each particular RIA.



AdvisorLaw offers ongoing legal and compliance consulting support to Registered Investment Advisers (RIA) and RIA firms.
Contact us today for a complimentary consultation!


Is your custodian a competitor?

The custodian’s business as a whole is necessary to consider, as well. There are some custodians whose business is so all-encompassing that there are aspects to the custodian’s business that actually compete with the RIA’s business. Other custodians cater exclusively to advisors and RIAs, acting more as partners with the RIAs and thereby adding value to the RIA’s business. A custodian can help to streamline processes and create a more fluid and effortless experience for an RIA’s clients. 

Advantages of new technology

The type of technology offered by the custodian, as well as the level of education and assistance provided by the custodian to the RIA’s team is another consideration. It’s important to know whether the custodian will offer thorough training and reliable support in that area. Another aspect relating to technology is whether the custodian offers a set technology suite or whether it will customize the technology offerings to best suit each RIA’s needs. 

A similar approach is helpful when evaluating the other aspects of what a custodian can offer an RIA business. Does the custodian offer access to outside investment managers? Are marketing services provided by the custodian, and if so, to what degree? What does the custodian contribute to the RIA in terms of practice-management services?

Costs and taking on new clients

Finally, it’s worth considering how a custodian will offer help with managing the costs and various functions of a business, as well as the custodian’s contribution to an RIA business’s growth. The custodian may offer assistance with the natural progression of a business in amassing more clients, though it’s also important to consider what role a custodian will provide in regard to proactive growth measures, such as future mergers or acquisitions. Perhaps the custodian will assist in identifying potential partners, matching them with RIA owners, and providing financing for the merger or acquisition. 



AdvisorLaw offers ongoing legal and compliance consulting support to Registered Investment Advisers (RIA) and RIA firms.
Contact us today for a complimentary consultation!


Onboarding

It’s important to know how the client onboarding process will work once a deal is secured, as well. Consider how long the custodian will assist with onboarding (e.g. during the transition only, for what amount of time following the transition, etc.), whether there will be a team dedicated to onboarding, and of whom the team will be comprised.

RIAs must handle the doubled tasks of both running a business and also supporting those who work for the business and its clients. When seeking a custodian, the general rule is to determine how that custodian can support all of an RIA’s needs. 

Looking for a custodian?

If you need assistance choosing a custodian or understanding state, DOL, or SEC, regulation, AdvisorLaw’s compliance team can provide expert counsel to ensure your RIA remains compliant. We also offer an array of services to help brokers transition out of their broker-dealer, including RIA registration and setup, navigating broker protocol, removing negative FINRA disclosures including defamatory Form U5 terminations from BrokerCheck, and more. 

AdvisorLaw is a trusted source for wealth managers and financial advisors. If you’d like to learn more about our services, please contact us using the form below. Our consultations are always complimentary.