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There are many important considerations when it comes to choosing a custodian for your RIA. An RIA custodian is an independent, third-party broker-dealer that provides services, such as executing transactions, holding and clearing client assets, managing customers, providing technology and service support, and more.
In this blog, we will discuss the role of RIA custodians, the services they provide, key aspects of an RIA custodian’s role, including benefits for investors and investment advisers, the custodian’s role in protecting investor assets, and how to choose the right custodian for your business needs.
The Custodian’s Role
RIA custodians are broker-dealers that provide a variety of services for both investors and investment advisers. Customers of your RIA open accounts with the custodian, and the custodian then provides a platform from which you may execute transactions on behalf of those joint customers, such as buying or selling securities. The custodian also holds and clears client assets, such as stocks, bonds, mutual funds, ETFs, options contracts, cash balances, and more.
In addition to these basic services, custodians can provide a wide range of product offerings to RIAs, including customer management systems (CRM), portfolio management solutions (PMS), integrated wealth planning solutions (IWP), mobile applications for on-the-go access to accounts, and reporting capabilities for financial advisors to track performance in real-time, among many other features.
Using an RIA custodian has many benefits for both investment advisers and customers alike. It helps advisors to streamline operations by providing technology solutions that allow them to manage accounts efficiently from one place, while monitoring performance over time, through comprehensive reporting tools.
This can save time and money by eliminating the need for the RIA to hire additional staff members or pay for separate software programs for each task that must be completed within their business model. Customers are provided with the peace of mind of knowing that their hard-earned money is safe with a reputable firm that is regularly monitored by regulatory bodies, such as FINRA, and that it’s insured by the SIPC (Securities Investor Protection Corporation).
A good partner broker-dealer can also provide tax advantages by helping investors stay within IRS rules when making investments or withdrawals from accounts under its jurisdiction. When done correctly, this could save the investor money in the long run.
When selecting an RIA custodian, there are several factors to consider before making your decision. First, take into account the custodian’s experience working with RIAs, as well as its reputation in terms of customer service and security measures taken to protect client assets. It’s also important to look at fees associated with using the custodian’s services. As many rates are determined by account size and other various criteria, be sure that you understand all of the costs involved before making your selection. Additionally, you should research the types of investments that are available through each custodian — some may specialize in certain asset classes, while others may offer a broader spectrum of options that could make them a better fit, depending on your needs. This review needs to be repeated at least annually, in order to meet your best execution review requirements.
Choosing the right RIA custodian is essential when it comes to running a successful investment advisory business. Selecting the custodian that will help ensure that your business runs smoothly, while providing maximum benefit for your customers in terms of safety, security, tax advantages, accountability, and overall quality service, is an important business decision.
Our compliance experts at AdvisorLaw offer RIAs professional advice that can help you both to select custodians and to follow state, DOL, or SEC regulations to make sure your RIA stays in compliance.
We also provide a wide range of services to assist brokers when leaving their current broker-dealer, such as RIA registration and setup, broker protocol navigation, expunging unfavorable FINRA disclosures, such as false Form U5 terminations, from BrokerCheck, and more.
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