Whether you’re an Investment Advisor Representative at an RIA firm or an Individual RIA, you should be familiar with the top RIA custodians. As of this writing, the “big four” RIA custodians (in no particular order) are Pershing, Fidelity, LPL Financial and Charles Schwab.
These custodians control an estimated 84% of custodied assets in the RIA market. However, you or your RIA firm do not have to be confined to those choices.
If you are at a loss as to which RIA custodian to engage for your custodial needs, InvestmentNews presents a side-by-side comparison of RIA custodians. We'll also offer a few valuable tips to help you make this important decision.
As Registered Investment Advisors, it’s your job to offer sound advice when it comes to investments and securities. Your clients may also request that you manage their investment portfolios, but you are prohibited from directly carrying out the transactions. Due to provisions in the Investment Advisers Act of 1940, a separate entity, known as the RIA custodian, is required to serve your clients in that capacity.
RIA custodians take on the massive responsibility of maintaining and managing the assets and holdings of your RIA firm. As stated above, the four biggest RIA custodians, Pershing, Fidelity, Schwab, and LPL Financing dominate the RIA market. Your RIA firm may be expected to choose from one of the four, but that does not have to be the case, as you will see later.
The main reason why RIA firms are required to have an independent RIA custodian hold their clients’ assets is to prevent RIAs from misusing client funds. This is exactly what happened with FTX CEO Sam Bankman-Fried, whom the SEC found guilty of comingling client assets and investing them.
Some advisors in the industry say that that case could have prompted the SEC to propose amendments to the Custody Rule, which has yet to be decided on. But that is another interesting story for another article.
As of now (without the custody rule amendments), RIA custodians must manage client funds or securities in separate, individual client accounts. These must be under the client’s name or in the name of the advisor acting as the client’s trustee or agent.
RIAs, meanwhile, are tasked by SEC rules to fulfill reporting requirements when they engage the services of a custodian. The requirements include the following:
For more security for client assets, investment advisors with custody of client assets are subject to annual surprise exams conducted by an independent public accountant. The accountant may contact some or all the advisor’s clients and confirm their holdings, based on the records held by the advisor.
You may notice in more recent reports that TD Ameritrade (TDAI) should be part of the “big four”, possibly bumping off LPL Financial or Fidelity. Pershing is probably the largest RIA custodian, with $2.5 trillion in AUM. Schwab is even more unlikely to relinquish its spot, since it was Schwab that acquired TDAI.
The acquisition is now amusingly referred to online as “Schwabitrade”. This blog post shares some insights on this acquisition and how it may have impacted the RIA/RIA custodian industry.
When the acquisition was announced in 2019, industry experts said it would be three years before the industry felt the impact. It was expected to take that much time for an acquisition of that scale to be completed.
It's been three years since then, and some small and medium-sized RIA firms thought that they would have to switch custodians. However, most of their fears were unfounded.
The cost and hassle of repapering was and is not worth the switch. Repapering involves having clients sign new agreements, then transferring all their data from Schwab or Ameritrade into a new custodian’s or broker-dealer’s system. Even though some smaller custodians have seen more business resulting from the Schwab merger, a wave of advisors switching is unlikely.
Possibly the real casualties of Schwabitrade are in software. One of the casualties is Veo One, TDAI’s much-loved trading platform, which was deactivated in favor of Schwab’s proprietary trading technology platform, Schwab Advisor Center. While there have been some complaints from smaller RIA firms about having to make this tech transition, it was not often or substantial enough for them to switch custodians.
As for former TD Ameritrade advisors, they report having little to no problems. They claim that the transition of trading platforms has gone smoothly and it’s unlikely that any former TDAI clients will object to the platform shift.
RIA firms that sign up with Schwab for the first time should have little to worry about. Any former TD Ameritrade customers will simply have their accounts moved to Schwab, along with shifting to Schwab’s mobile and desktop apps. TD Ameritrade’s thinkorswim platform was retained along with a few other educational tools.
According to the latest report from Cerulli, of about 18,000 independent RIAs, 16,000 of these firms have some of their assets custodied at Schwab.
As of now, Schwab custodies $3.37 trillion of RIA assets, and $7.05 trillion overall, making it the largest RIA custodian.
Let’s compare Schwab against the other RIA custodians, ranked by AUM:
Together, these four firms hold 84% of all RIA assets in custody, as per Cerulli. Some 73% of all RIAs manage less than $250 million. When combined, RIAs manage approximately $6.9 trillion of investable assets in the US.
The reigning four RIA custodians are all logical and sound choices, especially if you are an RIA firm that has at least $500 million in AUM. But would their custodial services and fees suit your needs?
Here’s an overview:
| Metrics | Schwab | Fidelity | Pershing | LPL Financial |
| IRA assets | $3.37 trillion | $1.5 trillion | $350 billion | $194 billion |
| Year established | 1971 | 1946 | 1939 | 1989 |
| Years in operation | 53 | 78 | 85 | 35 |
| Trading platform | thinkorswim | Active Trader Pro | NetX360+ | ClientWorks |
Seeing these metrics, RIAs cannot go wrong with going with any of the top four RIA custodians. All of them have very substantial AUM plus decades of industry experience to back them up.
In terms of their trading platforms, each custodian has sufficient cybersecurity features and functionality, so it can be more a question of personal preference. However, if you were to choose an RIA custodian in terms of the dollar value they provide, then it helps to know how they will charge for their services.
RIA custodians typically charge for their custodial services via these pricing models:
Keep in mind that every RIA custodian can come up with its own distinct pricing model for its services. Some may even offer enticing “zero-fee trading” to attract more business, while others may offer lower basis point fees than their rivals.
Apart from these arrangements, advisors and their clients could also be paying custodians in different ways. Other fees can include:
Find out exactly how your RIA custodian charges, then crunch the numbers. If they don’t add up to a figure you like, look for a better custodian.
Here’s a video that mentions some of the most important features to look for in a custodian:
The video mentions a couple of notable features: good capitalization and availability of investment options. Choose a custodian with a high amount of AUM. This reassures you and your clients that the custodian will not become illiquid.
As for available investments, choose a custodian that has a sufficient variety of viable investments for your clients.
If none of the four big RIA custodians are a fit for you, there are smaller, up-and-coming RIA custodians ready to fill their shoes. Here are some alternative RIA custodians that are worth a look:
IRA assets: undisclosed
Number of RIA firms serviced: 3,000
Year established: 2018
Years in operation: 6
Trading platform: Altruist
With its advanced trading platform and attractive pricing, Altruist is poised to be a strong competitor for the larger custodians. RIAs get to open 100 accounts for free, then pay $1 beyond that, regardless of the account size.
Altruist sets ETF and individual security trading fees at $0, and some mutual funds they offer charge only $5 per transaction. Altruist recently acquired Shareholder Services Group (SSG), effectively boosting it as a formidable custodial and financial services provider.
Altruist CEO Jason Wenk has a track record of successes in the fintech and service space, starting with the founding of the Retirement Wealth RIA, which had clients pay $600 for their first financial plan.
Altruist was built to service advisory firms with under $100 million in assets, but its scale allows larger RIA firms to work with clients who would have been unprofitable with a traditional custodian.
IRA assets: $23 billion
Number of RIA firms serviced: 200
Year established: 2002
Years in operation: 22
Trading platform: Liberty
Axos began when E*TRADE, known for its discount brokerage platform, set out after other retail brokerage firms (e.g., Schwab and Fidelity) to leverage its back-office custody and clearing technology. Axos got into the advisory custodial business as well.
As recently as 2020, Axos became the latest RIA custodian by buying E*TRADE back from Morgan Stanley. That one transaction gave rise to Axos Advisor Services, with $23 billion in advisor assets and 200 advisory firm relationships.
IRA assets: $80 billion
Number of RIA firms serviced: 4,537
Year established: 1968
Years in operation: 56
Trading platform: SEI Wealth Platform
SEI Advisor Network is a strategic business unit of SEI but has rebranded to Independent Advisor Solutions by SEI. Established in 1968 by its former CEO (now Executive Chairman) Alfred P. West Jr., SEI created an automated trust and investment accounting system for trust departments.
In the 1990s, SEI came up with another innovative tool: a wealth management operating platform designed for fee-based investment advisors. In 2022, Ryan Hicke replaced Al West as CEO, then launched their first ETFs and a new Data Cloud.
IRA assets: undisclosed
Number of RIA firms serviced: 400+
Year established: 1998
Years in operation: 26
Trading platform: Fusion
This is an RIA custodian that was established in 1998 by Robb Baldwin, a former RIA himself.
As its CEO was a Registered Investment Advisor, TradePMR prides itself on knowing firsthand the challenges that RIAs face and the support they need. TradePMR provides cutting-edge tech tools and custodial support services that can help advisors grow and manage their business.
Ultimately, the right RIA custodian for your firm will depend on your specific needs and preferences. Whether the custodian is an established player or a startup, carefully consider their technology, support services, and cost. Also, always choose a custodian that aligns with your firm's goals and objectives. Thoroughly researching each custodian's offerings and speaking with representatives can help you make an informed decision that benefits both your clients and your firm.
If you need more advice on how to choose the right RIA custodian or want to know more about RIA topics, you can always refer to the experts here on InvestmentNews.
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