Managing Your Practice – Custodian Roundtable: The Industry Landscape, Options, and Innovation in 2024 and Beyond

Date: May 16, 2024
Podcast: Managing Your Practice by Dimensional Fund Advisors
Host: Kathryn Williams (Head of Practice Management, DFA)
Guests:

• Ben Harrison (Managing Director, Head of Wealth Solutions, BNY Mellon Pershing)
• Thomas Moore (Director, Betterment for Advisors)
• Gabe Garcia (Managing Director, RIA Client Experience, SEI)

Episode Overview

This episode presents a roundtable discussion with senior leaders from three major custodians—BNY Mellon Pershing, Betterment for Advisors, and SEI—delving into the current and future state of custodian-advisor partnerships. The conversation explores the evolving role of custodians in helping financial advisors grow, innovate, and deliver better client experiences, with a particular focus on technology integration, business partnerships, and the continually expanding capabilities expected from custodians.

Key Discussion Points and Insights

1. The Evolving Role of Custodians

• Core Function: Safe-keeping of client assets remains at the heart of the custodian’s role, but expectations are now much broader.
  • “A custodian is really a safe keeping place for which advisors can keep assets on behalf of their clients… But at the end of the day, we’re really an extension of the advisor’s business. We are the core operating platform for which businesses run.” — Ben Harrison [10:20]
• Business Partners: Custodians are now partners in business strategy, growth, and client service.
  • “Custodians are more and more acting as true business partners when it comes to strategy on how to grow, on how to provide a higher level of service.” — Thomas Moore [12:04]
• Industry Evolution: From entrepreneurial ‘books of business’ to scalable enterprises, custodian relationships have mirrored the RIA industry’s maturation.
  • “What started as very small entrepreneurial businesses… now has had investment of capital, investment of providers that is unparalleled.” — Gabe Garcia [13:50]

2. Technology as a Catalyst and Challenge

• Integration & Complexity: Proliferation of purpose-built technology has created both opportunity and operational headaches.
  • “All of the data does not pass from one application to the next in an elegant way. So it creates in some cases, more work rather than less.” — Ben Harrison [16:58]
• Inflection Point in Tech Adoption: The initial rush towards highly customized tech stacks now gives way to a demand for streamlined, interoperable platforms.
  • “A decade ago… having the best of breed everything was very attractive… But the integration, the adoption and the deployment… in many cases didn’t come to fruition.” — Gabe Garcia [20:46]
• Efficiency & Automation: There is momentum toward vertically integrated custodial tech with increased automation, especially for non-revenue-generating tasks.
  • “The more that we can build a proprietary vertically integrated stack, the more efficiency we can drive for advisors both in their workflow and in data management.” — Thomas Moore [23:46]
• Cybersecurity & Regulatory Demands: As platforms expand, so does the need for robust security and compliance management.

3. Supporting Advisor Businesses Across the Spectrum

• Serving Large vs. Small RIAs:
  • Pershing focuses on enterprise-level (>$1B AUM) firms:
    “We’ve chosen to really focus on the billion dollar plus type of advisory business because that’s where we believe we can deliver the most amount of value…” — Ben Harrison [34:33]
  • Betterment targets the small RIA segment:
    “We are really focused, like laser focused on what I would call the small RIA… a firm that manages say under 300 million in assets.” — Thomas Moore [38:11]
  • SEI emphasizes a business model and service orientation approach, rather than AUM:
    “We don’t think about it in terms of asset size… someone who’s a financial planning oriented firm, has a models-based approach, and who values service and personal relationships.” — Gabe Garcia [41:54]
• Customizing the Partnership: All three panelists emphasize aligning their offering to the unique needs of the advisor, not a one-size-fits-all.

4. Modern Client Experience and Generational Shifts

• Expanding Services: High performing advisors are broadening service offerings, aided by custodians’ technology and platform features.
• Generational Complexity: Firms now serve up to four generations, each with distinct needs.
  • “Most firms today are serving at least three distinct generations and possibly four now with Gen Z coming into play. And that creates a dynamic that we haven’t seen…” — Gabe Garcia [28:27]
• One-Stop-Shop Expectations: Investors increasingly want a holistic, ‘single partner’ experience.

5. Cost, Profitability, and Value Alignment

• Transparent Pricing: Fee structures and business models vary (e.g., SEI eschews transaction fees and payment for order flow; Betterment emphasizes simple, competitive pricing for small firms).
• Alignment Over Price: All guests stress the importance of selecting custodians that align to a firm’s vision and needs.
  • “Price is only an issue in the absence of value.” — Ben Harrison [48:08]
  • “Look at [a vendor’s] marketing. Are they speaking to you? Are they speaking to your needs? Because that’s very indicative of whether that vendor’s strategy is aligned with your priorities.” — Thomas Moore [40:43]
• Soft vs. Hard Costs: Value must also be measured in time saved, efficiency gained, and the ability to focus on high-value work.

6. Industry Trends and the Future

• Continued Consolidation: Increasing M&A activity at both the custodian and advisor level, but also a persistent influx of new entrants.
• Innovation Response: Market consolidation at the top is opening up space for new innovation and enhanced offerings.
  • “What we’ve seen from providers outside of that legacy circle is a response… That means more innovation.” — Thomas Moore [53:49]
• Diversity and New Talent: A call for more diverse entrants into the wealth profession and optimism about broad industry growth.

Notable Quotes & Memorable Moments

• On growing complexity:
  “The stakes have been raised, expectations are a lot higher by, for the individual investor to really have a full set of capabilities for which they can access, really at a one stop shop.” — Ben Harrison [36:00]
• On technology’s double-edged sword:
  “The typical firm is hosting at least 11 distinct technologies in their ecosystem today. And that’s a daunting task to consider.” — Gabe Garcia [22:21]
• On long-term alignment:
  “There’s such—it’s such a shifting landscape all the time. It’s important, especially if you’re looking for your vendor for the next 15, 20 years, that there be that core alignment.” — Thomas Moore [40:43]
• On the opportunity ahead:
  “What gets me excited is… there is so much opportunity in the marketplace. The demand for advice and to help advisors is significant.” — Ben Harrison [51:59]
• On relationship-based industry:
  “This has always been and certainly is today, and I hope for the future continues to be a relationship-based business.” — Gabe Garcia [54:51]

Timestamps for Key Segments

• Custodian Role and Evolution: [10:20–16:09]
• Technology: Opportunities and Headaches: [16:09–25:25]
• Impact of M&A and Integration Issues: [25:25–28:27]
• Client Experience and Generational Shifts: [28:27–34:32]
• Serving Large vs. Small RIAs: [34:32–40:04]
• Cost, Entry Points, and Alignment: [40:04–48:08]
• Outlook and Industry Excitement: [51:20–57:27]

Takeaways for Financial Advisors

• Custodian choice is about strategic alignment, not just cost: Examine if a custodian’s values, structure, and target client match your vision and business scale.
• Technology efficiencies—and challenges—are central: Evaluate how integrated and interoperable a custodian’s tech stack is, and how much it will empower versus burden your team.
• Expect a more holistic partnership: Custodians are increasingly offering consulting, thought leadership, and hands-on support for growth and business innovation.
• Competition and innovation are creating more options: Whether a billion-dollar enterprise or a start-up RIA, suitable and forward-thinking partners are available—but due diligence is key.
• Be proactive and inquisitive: Ask potential custodians about their core client focus, tech vision, investments (capital and innovation), business model, long-term plans, and how they will cooperate as you grow.

Final Thoughts

The conversation closes with optimism about the future—the combination of innovation, industry dynamism, and ever-growing advisor needs means custodians are under pressure to evolve as genuine partners, delivering value through technology, service, and strategic insight. The panel encourages advisors to conduct rigorous due diligence and find partners that truly align with their business models and ambitions.

For further inquiries:
Find Ben, Thomas, and Gabe on LinkedIn. Learn more at dimensional.com.