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How RIAs Could Benefit -- or Get Caught in the Crossfire -- from the War Between Custodians and Tech Vendors

By Garrett Keyes March 1, 2019

The relationship between custodians, RIAs, and vendors is changing, an Aite Group study claims. Custodians and clearing firms are battling technology vendors and fintech firms to hold on to their relevance to advisors, according to new research from the firm.

“Custodians are losing their relevance” and advisors could choose to go directly to vendors instead of using custodial technology services in the future, Greg O’Gara, senior research analyst for Aite Group’s Wealth Management, says. For custodians, this could mean being relegated to operating only as transaction processors. As a result, custodians are increasing the technologies they offer RIAs through their platforms to increase their value-add, O'Gara says.

“Whoever controls the [whole] RIA-client conversation is in a really good position to compete. Whether it’s the vendor or the custodian, whoever can help RIAs grow and scale their business is in a better position,” according to O’Gara.

And he’s not the only one to recognize the custodian-versus-vendor competition.

“Absolutely there is a lot of competition among custodians and vendors,” Michael Silver, CEO of $603 million AUM RIA Baron Silver Stevens, says. For Baron Silver, much of their technology is bought directly from vendors.

“As an advisor you can now access so much financial technology, it’s hard to find a custodian that will have everything you are looking for,” he says. By going straight to vendors, Baron Silver Stevens can “customize and build exactly what they are looking for,” he says.

Silver sees a future where “larger RIAs say they don’t need custodians for anything other than transactions and say, ‘Charge us less.’”

RIA Ritholtz Wealth Management mainly uses direct vendors to fill their technology needs, CFO Bill Sweet says of his $900 million AUM firm.

“A majority of the time you will get a better product if you access vendors outside of the silo custodians offer,” he says. This is because “vendors solely focused on technology will always have an advantage over large organizations that do many things,” he says. “If you are looking at independent technology vendors, that is all they do,” he explains.

But custodians developing their own technological capabilities also seem to make sense to Sweet.

“If you are a large custodian, you want to own as much of your clients' experience as possible because that makes your firm invaluable,” he says. And there are many ways custodians are trying to accomplish this, according to the Aite study.

Greg O'Gara

Among custodian initiatives to expand technology service offerings, the report says custodians are focused on affecting account opening, account servicing, investment management, end-client access, and business intelligence.

Current initiatives in account opening and servicing aim to onboard clients faster, provide household-level performance messaging, use AI for client content marketing, and collect client data, the Aite study claims. Investment management initiatives seek to provide oversight in workflow rebalancing and let advisors customize portfolio construction. Custodian analytic initiatives hope to acquire industry databases, implement AI engines, and create intuitive analytic displays, the report states.