Registered investment advisers are the strongest driver of growth for Pershing's clearing and custody business as regulation and higher costs continue to put pressure on broker-dealers, according to chief executive officer Ron DeCicco.
“The strongest growth is on the RIA side,” he said in an interview at Pershing's annual conference in Orlando, Fla. “And I see that trend continuing.”
Broker-dealers traditionally represented a larger portion of Pershing's clients:
That could change, however, as growth has been relatively slower in the broker-dealer channel. The number of broker-dealers industry-wide has declined by around 600 in the aftermath of the financial crisis, Mr. DeCicco said. Regulatory pressures, which include higher capital requirements and ongoing debates over a broader application of the fiduciary standard, will drive a continued decline, he said.
“The capital implications and regulatory oversight is making a lot of advisers reconsider whether they really need to operate within a broker-dealer,” he said. “That's why we've seen growth in Pershing Advisor Solutions, because we have people who are folding up their broker-dealer and just converting completely to RIA.”
Pershing Advisor Solutions, Pershing's RIA unit, has $160 billion under custody, compared with $30 billion seven years ago, according to data provided by the firm. Year-over-year growth has averaged 15% to 20%, the firm said.
RIAs already on Pershing's platform are growing as the industry continues to mature and the market has improved, Mr. DeCicco said.
“There is a lot of organic growth happening within the RIAs that are on our platform,” he said. “And the market helps there, too, because it raises the level of assets, so the last couple years have been a positive.”
Pershing is also having success outside of its core market of larger breakaway teams leaving the major brokerage firms. The custodian has been winning more business from larger, established RIAs who may already have a preferred custodian, Mr. DeCicco said. Last year, for example, the firm won business from HighTower Advisors, a hybrid firm managing around $30 billion in assets.
As account aggregation technology improves, RIAs now are more comfortable using multiple custodians, according to John Brett, a Pershing managing director.
“Technology has changed so that they can have more than one custodian,” Mr. Brett said. “[RIAs] can keep assets with us and some at Schwab and some at TD in ways that they didn't have the flexibility to do in the past.
Still, Mr. DeCicco said that the breakaway market was still a consistent source of growth.
“As to whether there are more [breakaways] or not I'm not sure,” he said. “But the fact is the trend is continuing. It's certainly not slowing down.”