Looking for the right custodian for your firm comes with hurdles and possible setbacks, so it’s important to consult an expert to help you in your search. Bridgemark Strategies is here to provide insight and guidance registered investment adviser (RIA) firms need when searching for the optimal custodian.  Here’s a quick look at why RIAs need a custodian and what to hone in on during the search.

Understand the Role of the Custodian

The vast majority of new RIA firms are required to choose a custodian.  The custodian serves as an institution that maintains the RIA firm’s securities holdings and other assets on behalf of clients.  However, any custodian will not suffice.  In accordance with the Investment Adviser Act of 1940, investment advisers are required to rely on a qualified custodian for assistance.  The failure to use a qualified party violates the Act and could create problems for your firm.

Searching for a custodian is an important step when establishing your RIA. You want to choose a custodian that will fit your company as a valuable business partner. If you overlook details or fail to do proper research, you may hurt your business as well as your clients.

Choose a Custodian that Fits Your Business

Certain custodians are not the optimal fit for each type of practice.  Some investment adviser custodians have established a threshold in terms of the minimum asset requirements for firms, making finding a custodian harder. In some cases, the minimum asset requirement is in excess of $100 million.  These custodians may focus on firms that have a longer track record and are more established.

However, there are some custodians who are willing to take on the risk of working with smaller firms. It is up to the RIA firm to determine the specific type of custodian it is best aligns with.  Instead of choosing the custodian with the best pricing model or the one with an office closest to that of the RIA, you should zero in on custodians that provide service aligned with your unique business and overarching goal.

Evaluate Investment Platforms

No two investment advisers use the exact same models for allocation and overarching strategies.  Furthermore, there are differences in how an RIA uses securities and markets to manage client investments.  Custodians provide investment managers with direct access to diverse financial products to invest in on behalf of clients.  Examples of such investment products include exchange traded funds (ETFs), stocks, bonds, options, and more.  Firms that use a diversification or asset allocation approach will find the best custodian is one that provides easy access to different funds, including mutual funds.

Look for Value-Added Expertise

Certain custodians provide value-added expertise that gives them a competitive edge.  Carefully review the value-added expertise of each potential custodian, and gauge whether those bonuses will help your RIA firm develop into a more scalable and efficient business. As an RIA, you are a fiduciary to your clients, evaluating a custodian is just as important as evaluating investments.

If a prospective custodian can prove it has the experience and services that are most likely to benefit your unique RIA firm, you may want to give them additional consideration.  Examples of such value-added expertise includes advice about optimal investment tools, access to new information and best practices, strategies to add new clients, and guidance for creating a goal that is mutually beneficial for your RIA firm as well as your clients.

Technology Can Be a Game-Changer

When looking for a custodian, you’ll want to look at those that stay up to date with latest technology, especially when it pertains to security.  Choose a custodian that makes it easier to manage accounts, handle accounting challenges, establish financial planning, and complete performance reporting.  Whether the technology in question is provided directly through the custodian or through a third-party provider, it will make a meaningful difference in your RIA firm’s overarching efficiency and resulting client satisfaction.

When in Doubt, Prioritize the Custodian’s Service

Perhaps what matters most in the context of selecting the right custodian for your RIA firm is service.  Closely analyze the extent and depth of service provided by prospective custodians, and choose the group that best suits your RIA firm’s needs. You’ll find opening accounts, transferring money, reconciling trades, and performing other essential functions are easier and more efficient.

Contact Bridgemark Strategies

Bridgemark Strategies is a recruiting, consulting, and M&A firm.  We help advisors assess, evaluate and negotiate their search for a broker dealer, RIA, or strategic partner.  Our experience and success is unparalleled in the industry in helping advisors find their next firm. Reach out to us today at (866)266-8823 or on the web through our contact form for a confidential discussion and more information about our services.