Over the Labor Day weekend of 2023, Schwab Advisor Services is set to fully integrate TD Ameritrade's RIA custody business. Bernie Clark, Schwab's head of RIA custody, acknowledged that this integration "won't be without incident," at the firm's recent 2022 IMPACT event in Denver.
No commissions, low interest rates, questions about payment for order flow and a movement away from mutual funds to ETFs have affected the custody industry, with the large end-client accounts typically associated with big RIAs generating most profits for the infrastructure-heavy, big custodians.
A growing number of firms are offering, or working to soon launch, alternatives for advisors and other financial professionals who use the "Big Three" custodians — Schwab, Fidelity and Pershing. And many of these firms are gearing up for an opportunity to sow doubt in the minds of some Schwab clients about the integration with TD Ameritrade.
Fundamentally, the industry's upside-down economics means the big custodians need scale to make it work. As a result, the competition is eyeing this mega-merger as a once-in-a-lifetime opportunity to move some RIA assets its way.
Activity in the Custody Arena
A key example of the opportunistic strategic grab to capitalize on this pending disruption is the recent poaching of highly regarded former TDA-Schwab technology executive Jon Patullo by Apex, one of the RIA industry's largest behind-the-scenes fintech custodians.
Patullo and his team of advisor technology innovators designed and executed on the multi-award winning Veo integration platform, much beloved by advisors and by the advisor software industry.
Veo was a true technology breakthrough a decade ago, providing APIs for all of TDA's various back-office systems; this allowed nimble third-party technology vendors to write code for specialized integrations into their software and workflows, making life easier for advisors.
The efficiencies and productivity elevation of the entire technology ecosystem from Veo was dramatic. Also, it spurred many copycat moves by industry leaders, with none of them really gaining the traction and innovation that Veo achieved.
The integration creates a space in the industry for parties with an innovative technology strategy to enter and disrupt the oligopoly of RIA custodians. With Patullo and his colleagues, the potential competitive threat from Apex — via its transformation from an institutional fintech custodian to that of a highly viable substitute to Schwab — is quite real.
Other emerging technology platforms are coming to market with plenty of fanfare and high-profile executive hiring. Entrustody, a newcomer to the custody wars, recently onboarded a new CTO and hired Anthony "Mr. Purple" Stich, a well-known technology sales executive.
Stich was the former NaviPlan executive who helped broker the sale of the company to InvestCloud. He brings a lengthy list of contacts and relationships with some of the largest and best-known RIAs and technology platforms to Entrustody, which should have an immediate impact on the firm's credibility.
Of course, let's not forget the biggest player on the block — Goldman Sachs — which recently came to market in a big way with the billion-dollar onboarding of breakaway wirehouse brokers.
