Pershing urges brokers to embrace RIA model

Clearing firm shops AIG to its clients

Jun 14, 2009 @ 12:01 am

By Jed Horowitz

Executives of Pershing, the largest provider of clearing services to broker-dealers, spent much of their energy at the firm's annual Insite conference trying to persuade clients to open their brokerage doors to fee-based registered investment advisers. “Literally thousands of your reps have become RIAs, taking billions of dollars with them,” Mark Tibergien, chief executive of Pershing Advisor Solutions LLC, the firm's RIA custodial platform, told brokers at the conference held June 3-5 in Hollywood, Fla. It is tough trying to persuade commission-honed businesspeople to accept a competing model, but it is necessary for the health of both Pershing and its clients, Mr. Tibergien and his boss, Pershing LLC chairman and chief executive Richard Brueckner, said in interviews. “We've reinvented ourselves many times,” Mr. Brueckner said, referring to the Jersey City, N.J.-based firm's adoption of various servicing and financing models under five different corporate parents since 1977. Given the contractions in the number and profitability of its brokerage clients, Pershing is expanding aggressively into areas such as custody of RIA assets, international offerings and prime brokerage services for hedge funds.

Clearing firms offer financing, record-keeping and trading services to smaller broker-dealers and financial firms, making their fattest profits from providing credit for margin accounts and other areas that have been devastated by low interest rates and collapsing markets. Pershing got a temporary boost last year when several hedge funds that had cleared through The Bear Stearns Cos. Inc. of New York migrated to the company after Bear was forced by government regulators into the hands of JPMorgan Chase & Co. of New York.

“Certainly there are places where the pie is shrinking,” Mr. Brueckner said in an interview at the conference. But he insisted that Pershing's share of the slimming pie is growing.

As a subsidiary of The Bank of New York Mellon Corp., Pershing has exclusive clearing relations with 50% of the 50 largest independent broker-dealers, according to the company. That represents a major subset of the small- to medium-sized broker-dealer market, but one that generates thin profit margins for the firms because of high payouts to their sales forces.

Pershing executives have been working hard to preserve that share, actively soliciting clients to bid as part of a joint venture for the three broker-dealer units of AIG Advisor Group in order to keep the business in-house, according to two executives whose firms have been longtime clients and who asked not to be identified. AIG Advisor Group, with some 6,000 brokers, is one of many businesses that battered insurance giant American International Group Inc. of New York has been trying to shed for almost a year.

Pershing spokesman Michael Geller declined to comment.

The push into servicing RIAs, by offering Mr. Tibergien's unit to hold their assets and by helping existing broker-dealers set up their own advisory units that may or may not use its custody services, illustrates the paradoxes that Pershing is embracing as its core business sector shrinks.

Some Pershing clients, such as Shareholders Service Group Inc. in San Diego, are brokers whose principal business is offering custody services to RIAs in competition with Pershing Advisor Solutions. Pershing also has joined the posse of custodians actively encouraging brokers frustrated with working at large firms to set up as independent RIAs, an effort that risks antagonizing some of its broker-dealer clients who are pursuing the same producers.

Pershing, to be sure, says it has at least one marketing advantage over rival RIA custodians, such as The Charles Schwab Corp., Fidelity Investments' Fidelity Institutional Wealth Services unit, and TD Ameritrade Holdings Corp.'s RIA platform: It doesn't run a branch office or online retail brokerage platform that competes for its clients' retail customers.

“We're seeing lots of customers moving to self-directed accounts, taking control of their own destiny,” Mr. Tibergien warned brokers during a session at the Florida meeting.

He also insisted that by making room for fee-based advisers, brokers can help dilute the taint of commission-based greed in the public's mind. “The consumer press advocates the fee model,” Mr. Tibergien said.

Brokers who become advisers have themselves become “professional consumers,” he said.

For purely competitive reasons, Mr. Tibergien added, broker-dealers should embrace the advisory model be-cause some independent RIA firms have grown as large as mid-sized brokerages.

Pershing executives concede that the argument is slow to bear fruit. The firm about six months ago introduced a suite of consulting and practice management services called RIA Complete to help broker-dealers experiment with RIA businesses, and about 27 firms are considering it.

Only a handful, however — in-cluding Capital Analysts Inc., a unit of Western & Southern Financial Group of Cincinnati, and First Allied Securities Inc. of San Diego — are actively using it.

“People don't want to jump in with both feet, but we can help them test the market with different service and pricing models,” said James Dario, a managing director in charge of business development for the custody platform.

Mr. Tibergien was more direct. “It takes a while,” he said of the effort to push the advisory model to longtime brokerage executives. “It's got the gestation period of an elephant.”

E-mail Jed Horowitz at


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