One of the most important decisions an independent investment advisory firm can make is its choice of custodian.
Yet, when evaluating custodians, too many advisors focus on a limited set of criteria, such as the platform’s core portfolio management, trading and accounting capabilities, or its ability to handle complex securities and alternative investments. Or they make the safe choice of choosing a custodian they’ve used in the past, without fully considering whether it can accommodate their business needs today.
Advisory firms that don’t conduct extensive due diligence or expand their search to include a wider range of custodians often regret the choice they’ve made. Especially when they find out that the platform is more difficult to use and their provider charges more than they expected--without delivering the level of service and support they need.
These are some of the key findings of research conducted by The Wealth Advisor earlier this year. One hundred and ninety-two advisors responded to an online survey that gauged their level of satisfaction with their current custodian—and identified the reasons why they’ve switched or would consider switching to a new provider.
Familiarity with the major players
In a typical career path, an advisor begins their career working for one or more wirehouses or large hybrid firms. By the time they establish their own practice with an independent firm, they’ve already worked with several custody platforms. This is why most survey respondents cited their familiarity with two or more major players in the industry.
This exposure qualifies them to evaluate the relative strengths of their current custodian…and to point out deficiencies that could compel them to seek out an alternative.
Plenty of room for improvement
Even advisors who aren’t thinking seriously about switching custodians often feel that their current platform falls short in key areas. When given a choice of features and functionality they wish their custodian had, these were the “most-wanted.” Most custody platforms offer similar portfolio and account management capabilities. But many still don’t offer advanced features that fully integrate with the wide range of financial planning and investment management tools advisors use. And at a time when in-person meetings are very difficult to schedule, automated, paperless account opening functionality is becoming a must-have client-onboarding feature.
Advisors also want a high level of training and support to help them harness their platform’s full potential and resolve issues. When asked which services they wished their custodians offered, these five areas were at the top of their wish lists.
As we will see, the level of dedicated support a custodian offers can either make or break an advisory relationship.
Why advisors switch
When advisory firms change custodians, it’s rarely because they’re unhappy with their provider’s core capabilities. Instead, attrition stems from their dissatisfaction with customer service or the custodian’s lack of integration with the firm’s other client management tools.
For example, a number of survey respondents recently stopped using one of the largest and most well-known custodians. They all cited at least one of these reasons for terminating the relationship:
Substandard relationship management (75%)
Service issues (25%)
Excessive fees (25%)
Lack of integration with their CRM platform (25%)
None of these respondents expressed negative opinions about their former custodian’s portfolio management system, TAMP and model portfolio features, account balancing capabilities, or incidences of trading errors.
Could this dissatisfaction with support and fees be the result of changes in the service models some custodians have adopted?
Possibly. In recent years, several custodians have replaced dedicated relationship manage teams with call centers. While this service model keeps cost down, it can erode the value of the advisor-custodian relationship.
Just as clients expect their advisor to fully understand their financial picture and investment objectives, advisors want to work with service representatives who have a deep understanding of their unique business practices and challenges. When advisors have to deal with a different call center representative every time they have an issue, this can lead to frustration, especially if they experience long waiting times or have to wait for a callback.
What advisors want from their next custodian
Respondents were asked to choose what their most important criteria would be if they were looking for a new custodian.
As we see, dedicated relationship management and reasonable fees are at the very top of their lists.
Switching can be easier than advisors think
Many advisory firms would like to switch custodians held off because of the perception that changing platforms is a time-consuming and disruptive process.
This may have been true in the past, but, when done efficiently, switching custodians today often takes only a few weeks--rather than months--to complete. Nor does it require a firm’s operations and compliance team to devote significant amounts of time and labor to the transition.
Let’s consider the services provided to financial advisors and their clients by Independent Advisor Solutions by SEI (SEI). For example, a typical advisor from a small-to-mid-sized advisory firm moving a book of business to SEI typically takes anywhere from 4 to 8 weeks, and may be completely supported by a digital, eSignature-enabled account open and transfer process.
Given that SEI only serves independent advisors—not retail investors—its service model is built exclusively for independent advisors and their support staff. From the initial gathering of client data, through project planning and execution, to supporting the flow of documents, to initiating and overseeing the in-kind asset transfer process, and more, SEI’s conversion specialists have the singular focus of firms in transition. The dedicated SEI relationship manager, service liaison, and assigned conversion specialist work with the firm every step of the way to make the transition as seamless as possible.
Once the conversion is completed, each firm maintains their relationship manager and service liaison, then transitions from a conversion specialist to a dedicated technology training team that provides one-on-one and group instruction to help advisors, client service managers and back office personnel get up-to-speed on SEI’s comprehensive platform. From its user-friendly interface—and through the powerful combination of a full-service custodian and embedded technology platform—advisors have quick access to the advanced features they want, including:
automated, paperless account opening with eSignature fulfillment;
an embedded portfolio management system with automated rebalancing, models-based trading, tax harvesting, automated cash management services for withdrawals and contributions, advisory fee processing;
integrated statement production and performance reporting, including both statement-based and online financial goal tracking;
automated RMD and IRA contribution calculation and daily tracking of flows; and
direct integration to 3rd party CRM, financial planning, and aggregation systems, with embedded and automated workflows to a select number of leading systems;
practice management and consulting services to help differentiate your firm
SEI positions themselves as a relationship-based service provider— exclusively supporting independent advisors with a platform focused on households and clients—standing out relative to transaction-based custodians that are largely built to support retail investors and security-by-security trading. Every advisor has access to the expertise and ongoing support of a dedicated team of relationship managers and technology consultants. And, SEI can deliver these features in scalable solutions whose costs are competitive with other providers, while embedding the key technology functions that most other providers force to be add-ons.
To learn more about SEI’s relationship-based custody and technology platform built to help independent advisors deliver high-value advice, call 888-734-2679 or email AdvisorInfo@seic.com.
Methodology. WealthAdvisor conducted the financial advisor survey online during March, 2020. The survey generated responses from 197 financial advisors. WealthAdvisor is not affiliated with SEI Investments Company or its subsidiaries.
Certain information contained herein provided by Independent Advisor Solutions by SEI, a strategic business unit of SEI Investments Company. Neither SEI Investments Company nor its subsidiaries is affiliated with your financial advisor. Custody services provided by SEI Private Trust Company (SPTC), a federally chartered limited purpose savings association. Platform and integration services provided by SEI Global Services, Inc. (SGS). SPTC and SGS are wholly owned subsidiaries of SEI Investments Company. Certain services may be provided by subsidiaries of SEI Investments Company or if applicable non-affiliated strategic partners.
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Neither SEI Investments Company nor its subsidiaries provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.