Altruist says Schwab referral changes are driving advisor inflows

Challenger fintech RIA custodian Altruist has gained advisors in the aftermath of legacy custodian Schwab raising assets minimums within its RIA referral program, Altruist’s chief operating officer Mazi Bahadori tells InvestmentNews.

“We've certainly seen many, many advisors that have come to us on the back of that development,” said Bahadori. “It gets a lot of RIAs very worried that Schwab is trying to expand their own advisory business. And so they're [Schwab is] saying, under this amount we're not referring these clients out anymore so they're continuing to grow their book.”

Schwab shared late last year that clients must reach $2 million in assets to be referred to RIAs within its referral program, an increase from the previous $500,000 client referral eligibility. The legacy custodian also doubled the AUM needed for an RIA to participate in its referral program to $500 million in assets after previously being $250 million.

“It's a really awkward arrangement where your custodian is like, directly competing with you, and they're saying we'll refer these clients out but the other ones we're just going to keep for ourselves,” said Bahadori. “I think advisors that see that feel this isn't something that we want to be a part of, we want to just go custody with a firm that is not going to compete with us, that doesn't have an advisory business.”

The Schwab Advisor Network for RIA referrals has been running since 2002. A Schwab spokesperson told InvestmentNews in December that about 100 to 150 RIAs typically participate in the program. Roughly 16,000 RIAs custody assets through Schwab, making it the industry’s biggest RIA custodian followed by Fidelity.

Altruist has “just under” 5,700 advisor users, making it the third largest RIA custodian by advisor headcount, according to Bahadori. Altruist does not disclose how many advisor assets it custodies, but the company announced Tuesday that it became a custodian partner for Lifeworks Advisors, a Michigan-based RIA with $900 million assets under management.

New features Altruist plans to roll out this year include margin accounts, options trading, and alternative investment support. Altruist will also expand its AI assistant Hazel with tax assistance, compliance support, and automated RMDs (required minimum distribution) processing. 

Altruist was founded in 2018 and raised $152 million in a Series F funding round last year that was led by Singaporean sovereign wealth fund GIC. Altruist currently does not offer client referral to RIAs, distancing itself from the growing number of custodians dipping into the referral business as programs emerge from Goldman Sachs, BNY Pershing, and Robinhood’s TradePMR. 

Altruist CFO Marc Greenberg told InvestmentNews in August that the company “aspired” to one day build a client referral network. However, Bahadori views the current expanding referral marketplace as a way competitors are trying to mask their technological shortcomings.

“I think the reason why the incumbents and legacy providers are tripping over themselves trying to figure out and optimize these referral arrangements is because they have antiquated, archaic tech stacks that they can't really modernize. And so they're like, look, this is as best as it's going to get if you custody with any of those firms. So the next best thing that we can do is a referral network.”