- Key insight: Among many disruptions to the brokerage business following the move to commission-free trading, Fidelity is telling firms they need at least $100 million in assets to keep using it as a custodian.
- What's at stake: Fidelity has told sub-$100 million independent RIAs they have until June 30 to meet the asset minimum or it will end their custodial relationship.
- Expert quote: "It's a dramatic move because, you know, some of these advisors have been with Fidelity since day one and they never grew. They stayed the same size, and all of a sudden they're being kicked out." — Tim Welsh, founder of Nexus Strategies
Fidelity has a new message for RIAs using its custodial services: They need to have at least $100 million in client assets with the firm by next summer or move on.
Fidelity Investments this week sent out notices to RIAs that have entrusted it with less than $100 million in client assets informing them they have until June 30, 2027 to exceed that threshold if they want to keep using it as a custodian. Fidelity currently has a $100 million minimum that RIAs must meet to join its custodial services. The new announcement marks the first time it is applying the requirement retroactively to firms that are already with it.
"We recognize that changes require thoughtful planning, and you need time to determine the next steps for your firm and your customers," Fidelity wrote in its announcement of the new policy. "If you choose to move the assets you managed on the Fidelity platform to another custodian, Fidelity remains committed to servicing your needs during this transition."
An industry source familiar with the change said the custodial business has changed greatly in the past five and 10 years and that Fidelity has responded by reviewing its policy periodically.
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Commission-fee trading has disrupted custodial business
The custodial business has long been lucrative. But some of its profits have come under pressure in recent years, most notably from many broker-dealers' decision to cease collecting commissions on securities trades.
Various analysts and industry experts have said firms should consider charging new custody fees set at a percentage of the assets they're safeguarding. Tim Welsh, the founder of the consulting firm Nexus Strategies, said Fidelity seems to be taking a different tack: cutting ties with its least lucrative RIA clients.
"It's a dramatic move because, you know, some of these advisors have been with Fidelity since day one and they never grew," Welsh said. "They stayed the same size, and all of a sudden they're being kicked out."
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'This isn't an abstract decision for us'
Alex Chalekian, the founder and CEO of Lake Avenue Financial in Pasadena, California, wrote
He said he understands custodians' need to make business decisions. Still, the new policy raises the question of: "If we want more independent firms to launch, grow, and make financial advice more accessible, what happens when smaller firms have fewer custodial options?"
Chalekian wrote that his firm also holds client assets at the
Schwab, for its part, has no asset minimums but has taken steps in recent months that many in the RIA industry perceive as a competitive threat. In August, for instance, it announced it's
Welsh, who was at Schwab from 1999 to 2006, said he thinks Schwab's changes have provided cover for other firms considering possibly unpopular changes with their RIA businesses.
"They're saying, 'Hey, you know what? I guess the window is open, and we can make some negative announcements ourselves,'" Welsh said.
Among other changes aimed at boosting revenue, Fidelity in June started charging investors in ETFs whose sponsors do not pay Fidelity asset fees
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The importance of the $100 million threshold
Jon Beatty, head of Schwab Advisor Services, noted that Schwab provides custodial and other services to thousands of small RIAs. Beatty said the firm works with more than 11,000 firms with less than $100 million in assets.
"Small RIAs are the backbone of the independent advisory profession, and they always have been," he said. "Whether an advisor is just launching a firm or managing billions, our role is the same: help them grow, compete and succeed."
The $100 million asset threshold is significant in the wealth management industry because it marks the point at which RIAs can choose to be registered nationally with the Securities and Exchange Commission rather than with individual states. The Investment Adviser Association and regulator consultant Comply reported in June that
Michael Kitces, the co-founder of the XY Planning Network for RIAs, said he doubts any firm would decide to join Fidelity after crossing the $100 million threshold, especially since moving custodians is notoriously difficult. XY Planning Network provides services to more than 2,000 firms, many of them registered at the state level.
"I don't know if they're giving up on our marketplace, or if they just truly believe it's not profitable for these advisors," Kitces said. "But it does seem short-sighted."
Firms that are part of the XY Planning Network custody clients assets at Schwab.
Will Trout, the director of securities and investments at Datos Insights, said Fidelity's new asset minimum is a clear sign of interest in working mainly with larger firms. Now the question is whether other firms will move in the same direction.
"If the major custodians follow suit, the industry undergoes a significant consolidation: The RIA market bifurcates into scale-driven platforms and niche players serving solo advisors," Trout said.
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