For independent financial advisors, the choice of clearing and custody provider speaks to personal preferences — and the drastic shifts across the industry in recent decades.
As revealed by the comments below of executives from Ameriprise, Kestra Financial, Cetera, LPL Financial and Osaic, some of the largest and most competitive firms in the independent brokerage channel of wealth management pitch advisors on their particular approach to clearing and custody. And as documented
Many industry veterans view the choice of a self-clearing firm or an outsourcer as an "eye of the beholder" question, according to Brad Wales, who said he could "argue both ways" on it as a former Raymond James executive who is the founder of consulting firm Transition to RIA.
Among independent brokerages, the self-clearing firms are generally LPL, Ameriprise, Raymond James and Wells Fargo Advisors Financial Network. Cetera has a self-clearing arm but also works with Pershing and Fidelity. Using an outside provider brings lower margins to the brokerage firm but possibly lower costs and more choices as well, while doing clearing and custody in-house returns higher profits for potential reinvestment into advisor resources or compensation and fewer service headaches when dealing with just one company.
And many of the dynamics are changing, amid
In that sense, the self-clearing firms can use that capability to retain some measure of business among any teams that leave the brokerage world entirely for new or existing registered investment advisory firms. However, firms with external vendors could point out that they offer more options to stay with them completely. And RIAs could present menus that have even more custodial choices for advisors. Like many debates among advisors, the discussion can quickly turn highly specific and quite circular.
For self-clearing firms, the ability to absorb the substantial cost of the underlying technology is their distinguishing feature, according to Jodie Papike, CEO of recruiting firm Cross-Search. Of course, the opposite setup would enable a brokerage firm to leave those expenses to an outside party.
While custodial choices usually come down to "what an advisor has already experienced and what they're looking for in the future," the self-clearing firms "can get more aggressive with upfront money" than their outsourcing rivals, Papike said.
"They're getting rid of the middleman, so they can be more profitable at the end of the day," she said. "You really do have to have the scale and the size to pull it off."
To get a better understanding of clearing and custody fees and services in the independent brokerage channel of wealth management and the differences between firms that are self-clearing and those that outsource to external custodians, FP interviewed five of the largest firms by emailing them a list of questions.
Scroll down the page for excerpts from their responses. And follow these links to find other features from FP's
