How to choose the best RIA custodian 

In your profession, RIA custodians remain an invaluable partner. They assume the massive responsibility of maintaining the assets and holdings of your RIA firm. They can be federal or state-chartered banks, trust companies, broker-dealers, etc. But regardless of what type of entity they are, RIA custodians must be independent, and prevent RIAs from abusing or misusing client funds. 

Whether you are an individual RIA or work for an RIA firm as an Investment Advisor Representative, one of the most important decisions you will make is choosing your RIA custodian. In this article, we talk about what you should look for in an RIA custodian. With this information as a guide, you can then make informed decisions and choose the most suitable custodian.  

Introduction to RIA custodians 

RIA custodians are financial entities that maintain the funds and securities of RIA clients. They are independent of the RIA that hires them, and they must place client funds or securities in individual accounts. The accounts may be under the client’s name or the name of the advisor who serves as the client’s agent or trustee.  

RIAs must meet certain reporting requirements when working with a custodian. Under SEC rules, that includes: 

• giving clients the RIA custodian’s contact information 
• providing details about how funds or securities are maintained 
• tracking deposits and withdrawals for each client account 
• producing itemized statements to clients showing disbursements for custodian accounts 
• giving written notices to clients about any changes in how custodial assets are maintained 

Entities that can work as RIA custodians 

The institutions that can serve as qualified RIA custodians are determined by the SEC, and includes the following:  

• federal or state-chartered banks 
• savings associations 
• trust companies 

• foreign financial institutions 
• registered broker-dealers 
• registered futures commissions merchants 

Regardless of the type of entity, RIA custodians primarily do trades, but some custodians may also offer specialized services like bookkeeping. RIA custodians often work exclusively with advisory firms, but it’s not uncommon for them to work directly with individual investors.  

Criteria for choosing the best RIA custodian 

Working with the best RIA custodian for you is crucial to running your business. Knowing the key criteria and comparing custodians can help you find the best RIA custodian to suit your needs.  

Here are the most critical features you should weigh when choosing the right RIA custodian:  

1. Reputation and experience 

Some custodians have decades more of experience compared to others. You may want to choose an RIA custodian based on the type of RIAs they service. A sound choice would be a custodian with a reputation and experience of working with RIAs like your firm.  

It’s always a good idea to choose a custodian that’s familiar with your business model, size, type of clients, and work ethic.  

For instance, if your RIA is more of a small boutique firm catering to a specific industry, you should consider working with a custodian that knows the unique needs of your type of clients.  

An RIA custodian’s reputation also matters since you want to entrust your client assets to a recognized institution. 

2. Cost 

Working with an RIA custodian can involve a wide variety of fees. It’s crucial to know upfront what you’ll have to pay to establish and maintain a relationship with a custodian. Choose an RIA custodian that’s transparent about their fees, so you aren’t caught off-guard by any unexpected costs.  

3. Minimum asset requirements 

Some RIA custodians may have a minimum threshold for assets under management before working with an advisory firm. Check that your firm meets this requirement if they have it.  

It is not uncommon for an RIA custodian to require $10, $50 or $100 million in AUM to enter a custodial relationship. The minimum asset requirement is an important consideration if yours is a small or emerging firm that is still building up its business. 

4. Service and support 

Another key consideration in choosing an RIA custodian is its services and customer support.  

Apart from the basic trading and asset maintenance, can your custodian help advance your business or streamline operations? If an issue that requires prompt attention arises, how quickly or reliably can the custodian assist? 

Questions like that matter because operating an RIA firm presents many challenges, ranging from time management to new client acquisition. A good custodian understands these challenges and can offer solutions or guide your firm to grow at a comfortable pace. 

5. Investment options 

It’s important to consider the types of investments a custodian handles and how that aligns with your advisory strategy.  

Custodians can work with a mix of equities, bonds, mutual funds, exchange-traded funds and even some alternative investments. The investment options they work on should help you build portfolios for clients that fit your strategy while making it easier to rebalance and adjust as needed. 

6. Technology and innovation 

Thanks to AI-driven innovations, tech is rapidly changing the face of financial services.  

Change can be good if it enables smaller advisors to compete with larger firms, but navigating these changes can be overwhelming. Partnering with a custodian that’s focused on keeping pace with or getting ahead of tech changes can ease some of the burden. 

For example, there are some RIA custodians that can offer access to tech tools in-house or connect your firm with third-party providers. When considering which custodian to work with, it’s helpful to consider any tech tools or systems you’re currently using and how well they may complement or integrate with your custodian’s tech stack. 

7. Regulatory compliance  

Ensure that any custodian you are looking into complies with RIA custody requirements set by the SEC or state authorities. Always inspecting their regulatory record helps avoid potential legal entanglements that could affect your business.  

Consider only those custodians who keep a clean track record in regulatory matters. This is a clear indication of their commitment to upholding industry standards and protecting client interests.  

A custodian’s adherence to regulations not only demonstrates their credibility but also assures that your client’s assets are in safe hands. By placing a premium on your custodian’s regulatory compliance, you mitigate risks and reinforce trust with your clients and relevant regulatory bodies. 

The RIA custodian criteria from industry veterans’ points of view 

The preceding criteria are textbook characteristics for choosing a suitable RIA custodian. To provide more insight, we recently spoke to Louis Diamond, President of Diamond Consultants. He shared with us his own set of criteria and suggests what you or your firm ought to look for when choosing an RIA custodian: 

“From my experience, advisors often pick a custodian or at least their initial custodial preference, based on gut feel.” Although Diamond notes deferring to instinct or gut feel, he believes that “advisors can stand to be a bit more objective when starting off in the vetting process for a new custodian.” According to Diamond, a few factors stick out:  

1. Size and service experience 

Based on an advisor’s AUM, certain custodians are known to provide better service. Pay attention to the pros and cons of working with the largest custodians (i.e. Schwab or Fidelity) vs. more boutique RIA custodians (Pershing Advisors Solutions or Raymond James).  

2. Brand 

Especially for breakaways, the custodial brand is critical to the advisor’s transition narrative and level of confidence when messaging the new custodian to clients. Since the new RIA does not have a mainstream brand, the advisor will lean heavily into the brand of the custodian. 

3. Specializations  

Some custodians are better than others at securities-based loans, mortgages, and consumer credit products.  

4. Pricing  

While most are similar, some have $0 ticket charges except for certain mutual funds. Others have a nominal basis point custody or platform fee. Additionally, the “soft dollars” or business development dollars a custodian provides can make a difference.  

5. Fit with client base  

Does the RIA custodian seem appropriate for your client? Are there international clients? Do clients need access to a massive alts platform? Do certain clients have a pre-existing self-directed or retirement plan relationship with a custodian? 

Jon Beatty, Advisor Services COO of Charles Schwab, had this to say: “advisors selecting a custodian may find it challenging to navigate their options – every custodian brings something different to the table.”  

The top RIA custodians 

The top RIA custodians consist of: 

• Charles Schwab 
• Fidelity  
• Pershing (BNY Mellon) 

According to a 2023 report, these are among the 4 firms that hold 84% of all the custodied assets in the entire US RIA market. For an RIA firm to consider one of these big custodians, which should they choose? 

Beatty offers some tips. When looking for the right RIA custodian, Beatty says, “the right custody partner enhances an advisor’s ability to serve their clients, so the first step is to narrow the field to custodians whose capabilities best align with an advisor’s business goals.  

“For example, if an RIA is focused on serving High-Net-Worth clients, it will be critical for their custodian to provide access to the unique products and services this client category needs.” 

Why should you still consider one of the big four RIA custodians? This video makes a case for doing so. It’s a classic from 2018 and mentions TD Ameritrade before it was acquired by Charles Schwab: 

When it comes to an RIA custodian, is bigger better?  

To answer this question, Jon Beatty offers his two cents: “The size of a custodian is less important than their ability to help advisors meet their clients’ specific needs. However, there can be distinct benefits to working with a larger custodian.  

“There is a level of scale that provides advisors with more choices in building their business and serving their clients – such as a broader array of investment products and access to more cutting-edge tools and technology. Larger custodians have the benefit of experience.”  

Assuming that your RIA firm meets any prerequisites like a minimum asset requirement, pricing, costs, and other factors, it’s worth considering other criteria like technological know-how.  

Another important factor is whether their size is right and makes sense for your firm. For instance, a boutique RIA firm may be better serviced by a leaner, more dedicated custodian than a larger, possibly top-heavy custodian.  

What is the biggest pitfall advisors should consider when choosing a custodian?

“The biggest pitfall is selecting a custodian whose capabilities are not aligned with your firm’s business needs and goals,” says Beatty.  

He adds, “whether they prefer to have a single custodian or work with multiple custodians, advisors must always keep their eye on the prize: their clients.”  

In addition, Beatty says, “the right custodian (or custodians) will be right there with the advisor, enabling them to spend less time on the administrative aspects of their business, and more on building and deepening client relationships.”   

How do you decide on the best RIA custodian for you? 

Advisors should consider factors that impact how they run their business day-to-day, such as: 

• AUM minimums or custody fees 
• tech integrations 
• compatibility with the firm’s existing tech stack 

Also worth considering are the custodian’s value-added services that can elevate their client offerings or accelerate growth.  

The process of choosing the best RIA custodial business for experienced financial advisors involves a thorough assessment of tech capabilities, service offerings, regulatory compliance, and overall reputation. By prioritizing these key factors, advisors can make an informed decision that aligns with their business goals and enhance the value they provide to their clients.   

To know more about RIA custodians and RIA-related issues, remember to bookmark our section on RIAs.