How small RIAs can compete with behemoth custodians — and win

The ongoing migration of advisors from TD Ameritrade's custody platform onto the Charles Schwab platform in the wake of the 2020 merger highlights a longstanding issue for small and midsized RIAs: How can I compete with my vastly larger custodian? 

Today, four firms — Schwab, Fidelity, BNY Mellon's Pershing and LPL Financial — control 84% of assets in the registered investment advisor channel, according to Cerulli. The massive consolidation has created disillusionment and frustration among many RIAs that have seen diminished levels of service and support from their custodial partners. 

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In my experience (full disclosure: I spent 20 years at TD Ameritrade, most recently as a managing director working with RIAs to support their business growth) bigger hasn't meant better for advisors; it's meant longer wait times to reach customer support, less time spent with advisors working on their businesses — and even direct competitive plays to their clients. 

Given where we are, many advisors are rightfully worried not only about keeping their clients but also about how to get the support they need to grow their business. 

So what's an RIA to do?   

Know your competition
If you want to beat the competition, you need to know them inside and out. Advisors should do their homework — learn how much their custodian charges, what types of clients they work with and how they reach them. For example, Schwab is making a big play in the $1 million-plus market, assigning a dedicated consultant to work with those clients. Advisors who understand how Schwab and the other big custodians operate will be well-positioned to develop a strategy that focuses on walling off those clients. But don't try to compete on price. If you're a small to midsize advisor you simply don't have the scale. Instead, focus on adding value and offering services and specialties that your custodian can't provide.  

Carve out a strong value proposition and communicate it
To succeed, advisors must stand out in a sea of sameness. Most RIAs offer roughly the same set of services — some combination of investments and financial planning. If you fail to differentiate your practice, clients will view your service as a commodity and simply choose the firm with the lowest fee. 

READ MORE: Why Charles Schwab and TD Ameritrade are celebrating a $1.3T snooze fest

The best way to avoid commoditization is to carve out a niche either by catering to a certain segment of the population such as widows or medical professionals. Consider adding complementary services such as tax and estate planning. Or you could offer wellness services that focus on mental health and well-being, or financial education or coaching services.

Consider creating a sales sheet that lists all the services you provide so clients understand exactly what they're getting for their fee. The important thing is to make sure you are communicating your value proposition through every available media outlet, from your website and social channels to in-person interactions. 

Spend more time with clients  
Advisors know that relationship-building is the bread and butter of their offering, but many are finding that hard to do. According to J.D. Power's 2023 U.S. Financial Advisor Satisfaction Study, 28% of respondents say they do not have enough time to spend with clients. 

What do you have to offer that a behemoth brokerage firm does not? Time. A financial consultant at a large custodian is managing hundreds or even thousands of accounts and cannot provide the same one-on-one attention. Advisors often say that working with clients is the best part of their job, so this should be the fun part. 

READ MORE: Small custodians, big business

And while Zoom has become indispensable to doing business, it can't compensate for in-person visits. If possible, try to schedule face-to-face meetings with clients to create an experience. You can even incorporate some of your favorite high-end hospitality and retail aspects. 

Programs like the Ritz-Carlton Leadership Center teach businesses of all kinds how to engage more meaningfully with clients/customers and employees. The important thing is to go deep and show that you're there for them in a way they won't find with a competitor. 

Shop around
Custodians must do more than safeguard your clients' investment — they should fuel your growth. Custodians can help you to put all the sales and operational pieces together — increasing revenue and creating growth through marketing, human capital, career pathing and more. If you're not getting these services from your current custodian, consider switching your custodian or diversifying by adding a firm that can provide the support and resources to help you thrive.  

Instead of feeling hopeless about the changing custodial landscape, advisors should view it as an opportunity to sharpen their skills, reinforce their value proposition and work with partners that can help them be better and stronger.