RIA referrals, tech and service: How TradePMR by Robinhood pitches advisors

Robinhood's acquisition of wealth management custodian TradePMR didn't carry as big of a price tag as Vanguard's deal to buy Altruist, but the industry may be watching it just as closely.

That's because, after completing the roughly $300 million deal last year, TradePMR by Robinhood represents the union of a dominant self-directed investing service with 28.5 million clients and $355 billion in assets with a custodian that started 20 years before Altruist with a similar bet that it could disrupt the giants of the channel. TradePMR's now 15-year relationship with Wells Fargo's First Clearing and the June launch of client referrals to registered investment advisory firms through the new Robinhood Advisor Network respectively add an interesting third party and a constant topic of industry discussion on organic growth to the mix. Vanguard's Altruist deal involves much different parties and a reported price north of $4 billion, but TradePMR had already blazed trails as a startup custodian with big-name collaborators.

As part of Financial Planning's ongoing series on the fees and business models of the industry's custodians, a review of TradePMR's website shows its starting rates for clients and financial advisors at 400 RIAs with $50 billion in assets under administration (a 15% jump since the Robinhood deal).

But the firm rejects a "cookie-cutter approach" that applies the same transaction or asset-based fees to every RIA, according to Scott Victoria, who the firm promoted to the role president in May from his prior post as chief operating officer. TradePMR gives each RIA an "annual lookback" to review possible changes to their negotiated rates with the firm in light of any shifts in their businesses, and the firm strives to "work with firms that value that relationship, value that level of support and want to grow their business," said Rob Dilbone, who leads TradePMR's advisory practice recruiting efforts as the firm's chief revenue officer.

"It's a very open discussion in the beginning — we just want to understand where they are now. We get some information from them to understand their business," he said, citing criteria such as assets under management, trading volume, business mix and account volumes. "We know we've got to be competitive. … We know we can't have barriers to entry in the form of pricing, so our whole mindset around pricing is to, sort of, get it out of the way."

READ MORE: Advisors rethink Roth IRA conversions after the OBBBA 

TradePMR, Wells Fargo extend their agreement

The firm's competitive drive has captured the attention of industry experts like Gregory O'Gara, a strategic advisor with the wealth management practice of consulting firm Datos Insights. In an email interview, he pointed to TradePMR's recent recruiting wins, like a new multibillion-dollar RIA that opened in April and the May addition of massive fee-only firm The Mather Group to the nascent referral network. IPO access for RIA clients and updated tools for TradePMR's well-regarded Fusion advisor desktop, such as an integration with portfolio management technology firm Artha and AI-powered administrative capabilities with Robinhood Cortex, reflect the firm's continued capital investments outside the referral network, O'Gara noted. He described the post-deal bump in custodied assets as "meaningful, but still early innings."

But those potential new client leads have always loomed large in the TradePMR-Robinhood relationship.

"The original thesis was straightforward: Pair Robinhood's massive retail base with TradePMR's advisor infrastructure, using referrals as the bridge to shift Robinhood from transactional, trading-driven revenue toward a recurring, advice-based model. That strategy has moved from thesis to execution, and largely on schedule," O'Gara said. "That reach targets what the firm called young investors 'who weren't sitting in anyone's pipeline.'"

As for the firm's relationship with Wells Fargo, O'Gara said he will be watching how it evolves as each of the firms seeks to build up their own RIA businesses with new service lines and functions. For now, they'll be maintaining "a classic correspondent clearing model," in which "TradePMR gets institutional-grade custody infrastructure without building it, and Wells Fargo gets scaled distribution into the RIA market without the direct servicing burden," he said. The firms renewed their clearing agreement this past spring.

"TradePMR and First Clearing have maintained a relationship since 2011 that was recently extended through 2032," a spokesperson for Wells Fargo said in an emailed statement. "Through the relationship, First Clearing provides clearing services for TradePMR, including trade execution and clearing support for accounts held through the platform. The extension reflects the importance of continuity and stability for TradePMR advisors who utilize the First Clearing platform, as well as the longstanding working relationship between the firms."

READ MORE: Maximize tax-free Social Security income with this IRA withdrawal strategy 

Competitive referral fights

Given that TradePMR founder Robb Baldwin started the firm in 1998 after navigating a difficult custodial transition as an advisor in the wake of an M&A deal, the company has tried to avoid burdensome operational shifts from the beginning. While neither Wells Fargo nor Dilbone and Victoria shared specific figures about the financial terms of the firms' collaboration, Victoria said that much of it revolves around the cash-interest spreads in client accounts.

The TradePMR executives also declined to share any volume metrics so far for the referral network. But the firm charges RIAs a fee of 25% of the incoming customer revenue and has general requirements that each client have at least $250,000 in investable assets and every participating advisory firm have at least $500 million in AUM. It also charges a one-time cost of four times the annual referred revenue from the prior year for leaving the program.

In the firm's second-quarter earnings call, Robinhood CEO Vlad Tenev called out the referral program as an example of the "good long-term tailwinds" behind incoming client assets.

"I think that's the beginning of what could be a really, really strong RIA integration," Tenev said. "And, as you probably know, the RIA channel is a good, durable, consistent source of net deposits."

The terms of the referrals represent "a structurally different model" from those of Charles Schwab, Fidelity Investments and BNY Pershing, in that it is "a revenue-share tied to the advisor's own fee rather than a basis-point charge on referred assets," O'Gara noted. And the initial restrictions on participation show how the earliest iteration is "narrower than the 'mass market' framing suggests," at least for now, he said. But the prospect of young retail clients and operational dynamics that allow them to browse advisors' video bios for potential matches and make introductory calls through Robinhood's app display another difference from the "static advisor directories Schwab and Fidelity have run for years," according to O'Gara. He viewed Schwab's recent efforts to add more limitations to its program as a response to newer entrants to custodial referrals like TradePMR, Pershing, Goldman Sachs and Betterment.

"I'd measure success on three fronts: referral-to-onboarded-client conversion as the rollout scales past the initial test group, net RIA additions and retention on TradePMR (whether the Robinhood affiliation is a net draw or a deterrent for prospective clients) and whether Robinhood's own custody platform, if it lands around 2028, ends up cannibalizing or coexisting with Wells Fargo," O'Gara said. "Success here looks less like matching Schwab's AUM and more like proving the bridge from trading app to advice converts at scale."

READ MORE: Altruist CEO Jason Wenk on Vanguard deal and his 'life's work' 

Pricing for a 'heady responsibility'

For its part, TradePMR is planning to keep its focus on "relationship-first, growth-oriented" RIAs and "ensuring that we are a good partner" to them, Victoria said.

"One of the things that we pride ourselves on is getting to know these firms," he said. "We don't just accept anybody and everybody, because we take pride in those customers that we already serve."

That commitment shows up in pricing for RIAs that indicates "not necessarily where they are today, but where they're going," Dilbone said. The advisors can depend on service teams with "great people who are supporting them on the front lines" or call executives like him directly, he said, pointing out that the clients' life savings and children's futures carry an important duty.

"We know that, at the end of the day, there's an entrepreneur, a small business owner out there, and they're running their business and they're trying to take care of their clients," Dilbone said. "We're very aware of that and keep that in mind as we try to do our best to support our advisors and help them fulfill that responsibility to their clients. It's a heady responsibility, and we don't take it lightly."