A custodian’s responsibilities are multifaceted, touching almost every aspect of an advisor’s business. They can interact with clients, send statements, oversee securities transactions, post dividends, pull fees out of accounts – and the list goes on.
“Because of their immersive role, the long-term importance of choosing the right custodian is significant,” said Alan Markarian, senior vice president at U.S. Bank and national manager for the Investment Advisor Services group. “A custodian ultimately functions as an extension of your business, and they’ll impact your clients and reflect on your practice in countless ways.”
Given the decision’s importance, what should RIAs consider when weighing their options? We talked with Markarian about this in length. Here are the four questions he said you should be asking.
RIAs should choose a custodian that inspires confidence and demonstrates a strong, obvious commitment to working with your specific segment. After all, your clients will be in frequent contact with the custodian and should be comfortable with them.
“What you really want is a firm that’s large and sophisticated enough to give you confidence they can handle your needs without issue,” Markarian said.
Deciding if you’re large enough for a custodian is less intuitive and, as a result, harder to determine. In essence, it requires assessing how much your business will matter to them.
“You deserve to be with a firm that’s genuinely impacted by your business,” said Markarian. “Once you determine a list of custodians you’re confident can provide the service you need, I’d argue that the smallest firm might be your smartest choice.”
“Everyone’s experienced the difference in treatment you receive in a local specialty shop versus an impersonal, big box store. When people choose a big box store, they’re prioritizing price over the personal touch they’d get at the specialty shop.”
When selecting a custodian however, he explained, size and price aren’t always correlated.
“The larger, less-hands-on, less-willing-to-customize, less-service-oriented firms aren’t always the cheapest; sometimes just the opposite is true.”
In fact, he said, you might be paying a premium for the name recognition of a large firm.
“Often, you’ll pay less and get more attention from a smaller firm where you’re more significant. The core infrastructure and technology that powers most custodians is essentially identical. Differentiation comes from service and customization.”
Custodians come in many varieties, offering a wide range of products, services and specialties. It’s crucial to find one that matches with your RIA business from an operational standpoint. Markarian recommends creating a checklist of everything you need, then selecting a partner that ticks as many of those boxes as possible.
“Many advisors don’t realize there are ‘one stop shops’ that can provide custody, banking, trust services, cash management, securities lending and other solutions,” he said. “I’ve seen many advisors use multiple vendors for these services. If they’d spent more time on the custody decision, they could get them all in one place – along with the purchasing power bundling affords.”
Another important aspect of choosing the right custodian is their ability to offer sufficient support to you and your clients.
“In my experience, RIAs are willing to settle for far too little relative to service,” Markarian said.
He noted that if you don’t love your custody service team and don’t think of them as an extension of your staff, you should ask for new representatives or switch custodians.
“I’ve been performing relationship calls for 20 years,” he said. “The vast majority of the time, clients aren’t just happy with their rep, they gush over them. They build friendships – know each other’s families. The rep is genuinely viewed as being as important to the firm as some internal staff. That’s how the relationship should feel – anything less, and you aren’t getting the service you deserve.”
Choosing the right custodian is an important decision and one that can produce many long-term benefits. By following the guidelines presented in this article, you should be off to a good start.
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