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Jason Wenk built a $2 billion RIA. Now he wants to reshape the custodial marketplace with a new startup that takes aim at conflicts of interest and automation. Can he pull it off?

“Our thoughts were: What would be the right way to do this, and can we make that work from a business model perspective?” Wenk says of his custodian, Altruist, which launches in December.

He’s leaning, in part, on his experience founding the RIA, Retirement Wealth Advisors, as well as FormulaFolios Investments, a $3.2 million robo advisor for independent planners. But with his new venture, he's going up against a different kind of competition. Whereas the fragmented advisory marketplace is filled with thousands of small firms, the custodial business is dominated by a few multi-trillion dollar titans.

Charles Schwab and TD Ameritrade Institutional each house the assets of over 7,000 RIAs. BNY Mellon Pershing and Fidelity Investments also dominate the independent space, not to mention numerous smaller players like Raymond James or TradePMR.

“I suspect smaller RIAs will welcome competition, but the incumbents offer a lot more than just custody and trading services, and they've been doing this a long time,” says Tyler Gellasch, executive director of Healthy Markets Association, a non-profit that promotes market structure reform.

Wenk sees an opportunity to level the playing field for small advisors, who lose out on a number of benefits their larger peers enjoy. For example, in exchange for keeping assets on their platforms, custodians provide billion-dollar RIAs with hundreds of thousands of dollars to spend on their tech stack, Wenk says. Large RIAs can also leverage their size when negotiating with vendors.

“If you're a $50 million state-registered RIA, not only are you not getting soft dollars, but when you go to hire your tech vendors, you're probably not even getting discounts,” Wenk says.

Altruist, which will clear through DriveWealth, offers commission-free trading for equity, ETFs and mutual funds, custody services and a proprietary tech stack spanning everything from two-minute account opening to billing and performance reporting systems (Altruist isn't building its own financial planning software or CRM).

Advisors will pay $1 a month per account for all of it. The first 100 accounts are free.

While it's the technology and user experience Wenk expects to stand out to advisors, the “right way” is sending best execution reports, laying out mutual fund revenue sharing agreements, keeping cash balances low through fractional shares and avoiding soft dollars.

“There will never be a way that you could buy something and not know that we get paid for it,” he says, noting that this will end up costing Altruist approximately a 66% revenue cut off the top. To “make the math work,” he’s banking on a high degree of automation to keep expenses low.

Skeptics of the new entrant’s lofty goals question whether Altruist can provide efficiencies that are unique in the field.

“Thousands of physics and engineering Ph.D.s have spent decades trying to save fractions of seconds and fractions of pennies,” says Gellasch. “It’s going to be extraordinarily challenging for any new entrant to be doing that in a materially more efficient way.”

“All custodians look for opportunities to leverage automation where they can,” wrote a Fidelity Investments spokeswoman in an email.

RBC Correspondent Services, which services approximately 500 RIAs, according to an Aite Group custody report, has already figured out a way to keep costs down. It launched RBC Black in 2017, a platform with deep integrations into Redtail, CircleBlack, MoneyGuidePro, Riskalyze and VestMarkONE. The platform costs $175 per advisor a month (about an 80% discount to individual vendor rack rates), according to the report.

“I think there’s always room for innovative players to step into a crowded market and introduce new technology and economics,” says Greg O’Gara, who researches RIA custodians at Aite Group.

Altruist has gained early traction. Wenk’s goal was to have 50 advisors collectively managing $1 billion in assets on their platform by the end of this year.

“We hit that in less than five minutes,” Wenk says. The firm currently has about $2 billion in assets on its beta platform and over 300 RIAs in its queue to be onboarded after launch.

The company raised $8.5 million in Series A funding last month, according to Crunchbase.

Wenk aims to differentiate his firm’s disclosures by making them more thorough and digestible for both advisors and clients.

“[How custodians make money is] disclosed — no one's lying to anybody — but again, if we're being very transparent, the majority of clients aren't reading those items in detail. And I would say a good portion of advisors aren't spending a lot of their time and attention combing through these little nuances of how custody works,” Wenk says.

While Altruist isn’t charging commissions for trading on ETF and equities — fees that have recently been dropped by many retail brokerages — it also won’t charge them on the mutual funds. Because NTF platforms are filled with share classes ripe with 12b-1 fees, these platforms can end up being more expensive for the client, even though they may sound cheaper to advisors and be more lucrative for the custodian, Wenk says. By eliminating those platforms, Wenk hopes to make it easier to compare client costs.

Indeed, Altruist accepts revenue sharing from asset managers, Wenk says, but it will publish a list of who these asset managers are and how much they are paying Altruist. This information will come up when advisors select funds on the custodian’s portfolio builder, he says.

In addition to the execution form required by the SEC under Rule 606, Altruist will send advisors its own quarterly best execution report, Wenk says, adding that the company is still filling out the details of what will be included.

In terms of cash, Altruist will allow advisors to buy fractional shares of both ETFs and mutual funds for clients, so that clients can keep less money in cash. (Schwab will also allow clients to trade fractions of shares, according to the Wall Street Journal).

Altruist will have a default sweep option at a rate of approximately .50%. Money market funds will not be a default option, but will be available for advisors to use when constructing portfolios, Wenk says.

Depending on how these plans are executed, O’Gara says transparency could be a way for Altruist to stand out.

“I think complete transparency is always good for business — it’s good for the client, it’s good for the broker-dealer, it’s good for the investment product manufacturer,” he says.

Gellasch is skeptical as to whether Altruist will be more transparent than existing competitors, but welcomes the effort.

“There isn't a lot of cost transparency now, so we would welcome greater disclosures of not just conflicts of interest and order routing incentives, but also things like execution quality,” he says.

The full Altruist platform should be available to RIAs in the first week of December, according to Wenk. Advisors will be able to see assets held at Schwab, TD Ameritrade Institutional and Fidelity on the Altruist platform, he says.

Wenk expects advisors to use third-party custodians for sophisticated client accounts, such as those needing alternative investment capabilities.

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Clearinghouses/custodians RIAs Automation Fee disclosures Asset managers Fintech Cost transparency