Page 14 - Investment Advisor - December 2021

INDUSTRY INSIGHTS

By Tim Welsh

Are Custodians Tilting at Windmills?

Putting “unified and integrated” all in one advisory tech system is a dream
of every custodian. But history hasn’t been kind.

ny independent advisor will
say that the technology holy
A grail is one unified and inte-
grated system that does everything for
them — from CRM to financial planning,
to trading to rebalancing and reporting.
It has a client portal, a robo platform
for small accounts, includes risk profil-
ing, generates proposals, digitally opens
accounts, manages documents, works
with multiple custodians and broker-
dealers, provides compliance oversight,
has automated workflows and more.
Finally, this holy grail has best-in-
breed functionality that is tightly “win” wealth management, just as the At the same time, custodians desperate-
integrated and can service the many tech titans Google, Amazon, Meta (for- ly don’t want to become disintermediated
different types of clients ranging from merly Facebook) and Apple have won by a technology layer and end up de-facto
emerging investors all the way to the their categories. Also, due to the fast commoditized processors, subservient to
ultra-high net worth. Easy, right? growth and success of the RIA industry, their new technology overlords.
Unfortunately, because this vision is there are trillions of dollars at stake mak- This is why custodians continue to
so vast and the industry is so fragmented ing this once sleepy sector in financial try, and try again, to create a bundled
with thousands of small businesses that services a potential land-grab for whoever technology plus custody solution to
are all different, no one has cracked this can deploy the “platform” that can at least keep the technology wolves at bay, while
code. Therefore, independent advisors are provide most of the functionality to solve strategically attempting to gain mar-
left to fend for themselves and cobble for the vast majority of advisory firms. ket share from their competitors via a
together their own tech stacks from the new, end-to-end, complete, comprehen-
hundreds of advisor technology providers. WINNERS AND LOSERS? sive, full-featured, integrated, does it all,
Which brings up a juicy opportunity In this “Squid Game,” who has the most etc. — “technology platform.”
— and potential market dominance — for to gain or lose? Clearly, legacy RIA cus- Case in point: Pershing’s new ini-
whoever in this technology and custodian todians currently are benefitting the tiative launched last month to much
ecosystem that does become the “owner” most from the success and growth of fanfare: “Pershing X will deliver the
of the advisor desktop. That means the RIAs as they extract their two-way basis industry’s leading end-to-end adviso-
workstation or system advisors log into points in their dual roles as custodian ry platform, helping financial services
every morning to process business. and product distributor. firms solve the challenge of managing
The firm that succeeds in this gets As a result, there always has been a multiple and disconnected technology
to charge two-way rents from advisors’ delicate balance of power between the tools and data sets for their advisors to
clients as well as from product providers custodians and the advisor technology fuel business growth,” said Jim Crowley,
in the form of basis points for access- community that RIAs depend upon to Pershing CEO in its news release.
ing the underlying investments, separate manage and grow their businesses. Of
accounts, funds, cash vehicles and other course, when advisors are more efficient TROUBLED HISTORY
products that generate revenues in the via technology, they grow faster, fueling the This latest development from Pershing
investment management value chain. scale and profitability of the custodians, is not a surprise in the advisor industry. Adobe Stock
Ultimately, this positions a firm to creating a mutually beneficial relationship. However, big custodians have a long and

12 INVESTMENT ADVISOR DECEMBER 2021 | ThinkAdvisor.com