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Financial Advisors Guide to Choosing a Custodian

financial advisor custodian

A custodian is integral to your advisory firm’s operations as you’ll need a secure place to hold client assets. Working with a quality provider can also help to improve efficiency, which can be instrumental in driving your firm’s success. It’s important to know what factors to consider when selecting a financial advisor custodian.

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Why Choosing a Quality Custodian Matters

Clients rely on you for financial advice but more importantly, they want reassurance that their assets are in good hands. That’s where the financial advisor custodian role becomes important.

“Choosing the right custodian is key,” says Stephen Carrigg, director of investment analysis and a private wealth advisor at Integrated Partners in Waltham, Massachusetts. “It can show the strength of the advisor and give clients confidence when selecting an advisor.”

Existing and prospective clients may feel more comfortable working with an advisory firm that’s connected with a reputable custodian. A provider with an established brand and a solid track record of safeguarding assets could be a significant selling point for an investor when choosing an advisor.

How to Identify a Good Financial Advisor Custodian

Custodians may utilize different approaches when serving advisory firms, but there are some characteristics that good custodians have in common. Carrigg says ease of use is at the top of the list.

“The advisor portal must be easy to understand and easy to use, so you can quickly retrieve any data you’re looking for,” says Carrigg. “Likewise, the client portal must be easy to use as well so they can see all necessary information about their investments.”

When a custodian uses outdated technology, that can lead to frustrations for both you and your clients. In a worst-case scenario, that could cost you clients if they’re turned off by a user portal that’s clunky or otherwise difficult to navigate.

Carrigg says that aside from ease of use, good custodians have excellent service teams in place to meet the needs of advisors. They also take cybersecurity seriously to protect client information.

How to Choose a Financial Advisor Custodian

financial advisor custodian

Finding the right custodian to work with can take time and it’s helpful to have a strategy in place before you begin comparing providers. Here are some tips to keep in mind as you navigate the vetting process.

1. Start With a Needs Assessment

If you know your clients well, the first step in choosing a custodian may be the easiest.

“When looking at custodians, advisors should analyze the needs of their clients and which firms specialize in meeting those needs,” says Steve Azoury, owner of Azoury Financial in Troy, Michigan.

If you’re unsure of what your clients need, you might consider asking them to complete a survey or questionnaire. You can use their responses to better inform your decision-making when choosing a custodian.

Understanding client needs in part also means understanding your own. For example, you may be interested in solutions that can help you streamline administrative or accounting tasks, leaving you more time to work with clients. Evaluating your biggest pain points can help you to narrow down what you need from a custodian.

2. Consider Fees

Cash flow is important to any business operation and it’s important to weigh the fees a custodian charges. Specifically, Azoury says advisors should investigate whether a custodian’s fees are for specific services or based on the total value of client holdings, as that can have a significant impact on what you pay.

In reviewing a custodian’s fees, consider what kind of value you stand to gain in return. For example, it might be important for you to work with a custodian that offers support services for your firm. That may include assistance with goal planning, recommendations on technology implementation or strategy sessions to help you expand your client base.

Those are all things that could help you to scale up and grow, so it’s helpful to consider what kind of return on investment they might generate in exchange for the fees you’re paying.

3. Ask the Right Questions

A custodian’s brand reputation and fee schedule offer a glimpse at what they may be able to do for your advisory firm. Asking more detailed questions can help you to determine whether a custodian is a good fit.

Here are some key questions to consider:

  • Does the custodian work with firms that follow a business model that’s similar to yours?
  • What services are offered?
  • What technological tools does the provider offer? For example, does the custodian offer integrations for separately managed accounts? And are all tools included in pricing or are certain options only available for an additional fee?
  • Are there alternative investments you can use on the custodian’s platform?
  • Will you have a dedicated support person or account manager? How responsive is support?
  • What is the user experience like on the advisor side? What is the user experience like for clients?

The second question on the list is especially important. Azoury says that a good custodian should offer a comprehensive range of services, including account administration, transaction settlements, collection of dividends and interest payments, tax support and foreign exchange management.

Carrigg offers one final tip for choosing a financial advisor custodian.

“Advisors should look from the clients’ perspective and where they would fee secure if they were to put their own money in this custodian,” he says.

Moving to a New Custodian

financial advisor custodian

It may be necessary to move to a different custodian if the relationship with your current provider sours. However, changing custodians can have certain implications for your firm that you don’t want to overlook. For example, Azoury says to review the terms of your existing contract to understand whether there may be a cost to end the relationship prematurely. It’s also wise to consider the context for the change.

“When moving elsewhere, you need to look at what went wrong the first time and ask whether switching custodians will fix this issue,” says Carrigg.

Carrigg says talking to multiple custodians and discussing your business model can help you find one that fits with the way you do business. “One of the good parts of having a failed relationship is knowing what doesn’t work, which will help you find what does work,” he says.

The Bottom Line

Your choice of financial advisor custodian can have far-reaching implications for your business so it’s important to get it right. Taking time to look at all the options can help you to find the custodian that can help you to achieve your business goals.

Tips for Growing Your Financial Advisory Business

  • Make it easier for clients to find you. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
  • Expand your radius. SmartAsset’s recent survey shows that many advisors expect to continue meeting with clients remotely following COVID-19. Consider broadening your search and working with investors who are more comfortable with holding virtual meetings or spacing out in-person meetings.

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