I'm a big fan of technology and a big fan of a bargain. So when a custodian offers me free technology, that's a good thing, right? Maybe not.
According to Tim Welsh, president of Nexus Strategies, “Custodians have long owned adviser software over the years, with mixed results. This is definitely an issue advisers should continue to monitor.”
Consider these points:
Free might not be free – It might be free now, but there might be a charge later — after you've already implemented the solution. The custodian might also impose new asset requirements, charging some firms and not others.
(More: Waning revenues may mean more fees)
Multi-custodian capabilities are table stakes – Some "free" software only works with assets held at the offering custodian. Yet most advisers use multiple custodians and/or manage outside accounts. Locking yourself to a single custodian limits your ability to take advantage of every opportunity for new assets.
Fiduciary, anyone? – As a fiduciary, you need to put your clients' interests first, and it might not be in their best interests to be at the custodian offering the free software. Accepting free software automatically places you into a gray area. Do you want to have to answer these types of questions from regulators and prospective clients?
(More: Why advisers are worried about eMoney's acquisition by Fidelity)
Independence matters – No prudent business owner wants to be beholden to a financial institution for the critical software tools used daily. Why would you want a financial institution to have undue influence on your business because you use their software? What if the custodian changes strategy, is acquired by a competitor, goes after high-net-worth clients, etc.? Advisers are independent so that they can choose what's best for their clients. … Don't betray your mission just for a price break on software.
Custodians compete – All the big retail custodians are investing heavily in advice platforms that will (if they don't already) compete directly against advisers. Why would you put your business at risk by not diversifying your custodians?
Whose agenda? – Independent providers have built systems customized for independent advisers. Partnering with true independent software platforms will prevent you from becoming another firm's distribution platform.
Sheryl Rowling is chief executive of Total Rebalance Expert and principal at Rowling & Associates. She considers herself a nontechie user of technology.
