Why move to my custodian instead of a retail account?
I may be over-thinking this, but I need to clean up my spiel when a client asks where they should open an investment account.
Until this year I wasn't affiliated with a custodian. If a client said "where should I rollover my IRA" I'd ask whether they were intensively DIYers (Fidelity) or set it and forget it (Vanguard) or Please-God-Don't-Make-Me in which case I'd let them leave it where it was or sometimes, God help me, I'd send them to TIAA-CREF (easily the most difficult to work with, but if you *want* patronizing then they're well suited for the job.)
But a couple of things have changed. For one thing, Fidelity is ruthlessly targeting my retail clients. If they have half a million in rollover IRAs they get cold-calls from salesman trying to get them to sign up for their "free" investment advising sessions. (During which they undermine my advice and sell them expensive Fidelity funds.) I have been able to access their accounts using Limited Powers of Attorney, but Fidelity has decided to stop that so they can harvest these clients themselves. I still have some LPOAs in effect but I don't think I'll put anyone new there.
The second thing that has changed is that everyone like me has just decided to leave Fidelity and Vanguard is having huge growing pains. They are over a month behind on processing paperwork. They're difficult to get on the phone and, well, we're getting what we paid for when we chose the lowest-cost provider.
Meanwhile, I am about to be able to offer access to the Dimensional Fund family that you can't get retail: they only offer it to vetted financial advisors. Only clients who have accounts with the custodian I'm affiliated with can get access to these funds. I think this is a big selling point for going with my custodian, but the biggest benefit is that it's easier for me to work on their account. Basically, if you open an account with Vanguard it's harder for both of us: you need to do more of the work, and when you do want my help it's more work for me.
The downsides of having clients open accounts at my custodian are that they're not really likely to want to stay with them if they stop working with me. It's easy enough to move from one advisor to another, but if you're moving from an advisor to a DIY situation then I'd have to say that my custodian isn't the one I'd pick for a DIYer. But how can I tell if clients are DIYers? And they could move it to their own platform if they wanted! But if they're NOT going to stay with me past the initial financial plan, and we know it, it isn't worth the bother to move them into the Custodian knowing they'll likely want to move it somewhere else later. So a huge downside is that I'm trying to determine their commitment to me as we begin the engagement and neither of us really knows!
The other downside is that no one has ever heard of my custodian. I'm using http://ssginstitutional.com/why-ssg as an overlay between me and Pershing/Mellon Bank. All the reporting and custody are at Pershing, but they have no retail-facing client services so Shareholders Service Group serves as the human factors interface. They work mostly with me, but the client can talk to them if they want.
I was planning to go with TD Ameritrade but decided not to because TD Ameritrade is really challenging to work with until you have $50 Million in assets under management. They are really REALLY hard to work with until you have $5M in assets under management. I don't want to be incentivized to move people to my custodian if they're doing great with retail accounts, and I don't want to be incentivized to chase assets under management when my whole business model is set up to be holistic under a retainer without significant concern about where and how much your assets are.
But working with retail accounts is HARD! I have no reporting tools, I have no compiled overview, I can't charge my fees against their rollover IRAs (which is a good tax strategy for them), and I can't standardize things like model portfolios. I really want to move some of my clients with retail accounts into accounts at SSG and I'm stumbling on what to say. I'm fiduciary, remember: everything I do has to be in their best interests.
The closest I've come is to say, "It depends on how much you want to manage your own money. If you just want me to weigh in once or twice a year and you'll come with your logins and don't mind spending a bunch of time with me (since I'll do all the work when you're with me) then let's stick with Vanguard. But if you want to be less involved and want me to do more monitoring and work on your orders after you've left, then let's move it to the custodian I'm affiliated with."
I wonder how many people would really care where I put the custodian? I really wish I'd gone with TD Ameritrade now because they do have a really robust retail-focused side and I wouldn't be conflicted with this trade-off. But, uggh, not until I have more AUM, which I really might now ever have. I think my average AUM per client is about $800K, and a big chunk of that is tied up in current employer plans. And even some that *could* move isn't going to for a variety of reasons: I won't be rolling out any Government Thrift Savings Plan money, for example. And one of my clients had an insurance company's GIC paying 4.5% guaranteed. Fiduciary means I don't move them unless I can do better and I can't so I won't. I figure I'll gather $5M in AUM naturally as I go, but I sincerely doubt I'll ever hit $50M with my business model. (I charge for taxes and planning as well as investment advising, and top out with clients at about $10M in assets, so growing big AUM isn't one of my goals.)
See what I mean about this being a mess? I need to clean it up. Clients don't need to hear every single plus and minus, yet most of this dumps out on them when they ask where to put their money. Angst isn't a good look for me. I need a quick and dirty way to find the right answer for clients without making them decide when they don't really understand the issues.
Anyone got a quick quiz on whether you're a DIYer or a Validator or a Delegator?
Until this year I wasn't affiliated with a custodian. If a client said "where should I rollover my IRA" I'd ask whether they were intensively DIYers (Fidelity) or set it and forget it (Vanguard) or Please-God-Don't-Make-Me in which case I'd let them leave it where it was or sometimes, God help me, I'd send them to TIAA-CREF (easily the most difficult to work with, but if you *want* patronizing then they're well suited for the job.)
But a couple of things have changed. For one thing, Fidelity is ruthlessly targeting my retail clients. If they have half a million in rollover IRAs they get cold-calls from salesman trying to get them to sign up for their "free" investment advising sessions. (During which they undermine my advice and sell them expensive Fidelity funds.) I have been able to access their accounts using Limited Powers of Attorney, but Fidelity has decided to stop that so they can harvest these clients themselves. I still have some LPOAs in effect but I don't think I'll put anyone new there.
The second thing that has changed is that everyone like me has just decided to leave Fidelity and Vanguard is having huge growing pains. They are over a month behind on processing paperwork. They're difficult to get on the phone and, well, we're getting what we paid for when we chose the lowest-cost provider.
Meanwhile, I am about to be able to offer access to the Dimensional Fund family that you can't get retail: they only offer it to vetted financial advisors. Only clients who have accounts with the custodian I'm affiliated with can get access to these funds. I think this is a big selling point for going with my custodian, but the biggest benefit is that it's easier for me to work on their account. Basically, if you open an account with Vanguard it's harder for both of us: you need to do more of the work, and when you do want my help it's more work for me.
The downsides of having clients open accounts at my custodian are that they're not really likely to want to stay with them if they stop working with me. It's easy enough to move from one advisor to another, but if you're moving from an advisor to a DIY situation then I'd have to say that my custodian isn't the one I'd pick for a DIYer. But how can I tell if clients are DIYers? And they could move it to their own platform if they wanted! But if they're NOT going to stay with me past the initial financial plan, and we know it, it isn't worth the bother to move them into the Custodian knowing they'll likely want to move it somewhere else later. So a huge downside is that I'm trying to determine their commitment to me as we begin the engagement and neither of us really knows!
The other downside is that no one has ever heard of my custodian. I'm using http://ssginstitutional.com/why-ssg as an overlay between me and Pershing/Mellon Bank. All the reporting and custody are at Pershing, but they have no retail-facing client services so Shareholders Service Group serves as the human factors interface. They work mostly with me, but the client can talk to them if they want.
I was planning to go with TD Ameritrade but decided not to because TD Ameritrade is really challenging to work with until you have $50 Million in assets under management. They are really REALLY hard to work with until you have $5M in assets under management. I don't want to be incentivized to move people to my custodian if they're doing great with retail accounts, and I don't want to be incentivized to chase assets under management when my whole business model is set up to be holistic under a retainer without significant concern about where and how much your assets are.
But working with retail accounts is HARD! I have no reporting tools, I have no compiled overview, I can't charge my fees against their rollover IRAs (which is a good tax strategy for them), and I can't standardize things like model portfolios. I really want to move some of my clients with retail accounts into accounts at SSG and I'm stumbling on what to say. I'm fiduciary, remember: everything I do has to be in their best interests.
The closest I've come is to say, "It depends on how much you want to manage your own money. If you just want me to weigh in once or twice a year and you'll come with your logins and don't mind spending a bunch of time with me (since I'll do all the work when you're with me) then let's stick with Vanguard. But if you want to be less involved and want me to do more monitoring and work on your orders after you've left, then let's move it to the custodian I'm affiliated with."
I wonder how many people would really care where I put the custodian? I really wish I'd gone with TD Ameritrade now because they do have a really robust retail-focused side and I wouldn't be conflicted with this trade-off. But, uggh, not until I have more AUM, which I really might now ever have. I think my average AUM per client is about $800K, and a big chunk of that is tied up in current employer plans. And even some that *could* move isn't going to for a variety of reasons: I won't be rolling out any Government Thrift Savings Plan money, for example. And one of my clients had an insurance company's GIC paying 4.5% guaranteed. Fiduciary means I don't move them unless I can do better and I can't so I won't. I figure I'll gather $5M in AUM naturally as I go, but I sincerely doubt I'll ever hit $50M with my business model. (I charge for taxes and planning as well as investment advising, and top out with clients at about $10M in assets, so growing big AUM isn't one of my goals.)
See what I mean about this being a mess? I need to clean it up. Clients don't need to hear every single plus and minus, yet most of this dumps out on them when they ask where to put their money. Angst isn't a good look for me. I need a quick and dirty way to find the right answer for clients without making them decide when they don't really understand the issues.
Anyone got a quick quiz on whether you're a DIYer or a Validator or a Delegator?