What the $50 million Altruist funding means for RIA custodians

Altruist’s latest $50 million funding round could signal an opportunity for the Los Angeles-based fintech to disrupt the RIA custodial space. 

Altruist announced its funding round on Wednesday led by global venture capital and private equity firm Insight Partners, with investments from Series A investor Venrock, as well as asset management giant Vanguard. The funding follows Altruist snagging former Vanguard CEO William McNabb to join its advisory board, drawing new attention to the fintech and its potential to break up the RIA custodial oligopoly with the support of an asset manager. 

“Altruist managing to nab McNabb is the strongest signal yet that potential disruption of the RIA custodial space isn’t just something that some RIAs want to see as a form of greater competition and more choices,” Michael Kitces said in his InvestmentNews adviser tech blog update in February.

Vanguard has been stealth-targeting the RIA channel under the leadership of Ryan Barrows, who spearheaded Vanguard’s RIA channel and financial adviser services since January 2020, said William Trout, Director of Wealth Management at Javelin Strategy & Research. 

“After ramping up its digital capabilities in the form of Personal Advisory Services and other direct-to-consumer propositions, Vanguard has recognized the extent to which the RIA channel will be indispensable to its growth ambitions,” Trout said. “Robo-advice platforms and traditional wholesaling efforts will not be enough to move the sales needle. The white-hot RIA space is where the action is.” 

As a result, next-gen platforms like Altruist are flexing their digital muscle by offering friction-removing technology that reaches across the entire client lifecycle, from CRM and onboarding to reporting and billing, Trout said. 

With the new cash influx, Altruist plans to enhance operations and fuel innovation to expand its products, according to the announcement. Altruist offers commission-free asset management, performance reporting, client dashboards and other tools for RIAs in a central digital platform. The startup launched in 2019 as a new entrant to the RIA custodial business and raised an $8.5 million Series A round, building around an innovative pricing model of charging $1 per account for its services. 

“Partnering with Altruist will help Vanguard increase its relevance to the independent channel, while keeping tech-centered custody giants like Schwab, Fidelity, and Pershing honest,” Trout said. 

For Altruist, providing custody and clearing services to RIAs requires the ability to scale, according to Kitces, which explains why leading RIA custodians have built their RIA custodial businesses as an extension of some other business. 

From the adviser perspective, the appeal of having a new RIA custodial competitor is an opportunity for new pricing models for RIA custody services, according to industry observer Michael Kitces.  

“In this context, it is perhaps not surprising that former Vanguard CEO has become an investor and is taking a seat on the Altruist advisory board, as Vanguard — legendary for its unwillingness to engage in revenue-sharing and other shelf-space agreements with brokerage firms — has seen firsthand the challenges of the current RIA custody model (from the asset manager’s perspective) and the appeal of new RIA custodians with alternative pricing models,” Kitces wrote in a February blog post for InvestmentNews.