Back in the fall, right around the time the whispers about
Schwab purchasing TD Ameritrade evolved into a roar, advisers who used TD as their custodian began to face the prospect of having to
repaper thousands of clients.
To be sure, as of right now,
TD has said that Schwab and TD, will continue to exist as two separate custodial entities.
But make no mistake, repapering is a massive undertaking.
Not only must each aspect of the process occur with legal and technological precision, but, when you consider the concerns of each client, the changes need to be implemented to coincide with messaging that assuages their fears and irritations.
In the last two years, we’ve acquired half-a-dozen firms and their roughly 4,000 clients. The folks whose assets were held on custodial platforms other than the ones with whom we have relationships (TD Ameritrade, Fidelity and Schwab) had to go through the repapering process.
As part of that process, clients are not only asked to sort through and sign a good deal of paperwork in the transfer month alone, they’ve got to appraise two separate custodial statements (one from an unfamiliar source) and go online and register and quickly get up to speed with the new custodian’s portal.
Of course we go to great lengths to make things easy for the client, and the most difficult parts of the process fall to our compliance and operations teams.
In terms of sequence, first, generally, we send out the positive and negative consent letters.
The use of positive and negative consent letters is decided by state law —most states allow them, but some do not. When we ask clients to allow us to switch their custodian, these consent letters have typically gone out via overnight mail, though
TD and
others have recently made DocuSign available.
The letters inform the client that we intend to transfer their funds to a new custodian and that they have 30 to 60 days to opt out. “Negative consent” means if they don’t return the letter, approval is considered granted. “Positive consent” letters require the client to physically sign and return the packet (or, in situations with electronic notifications, use DocuSign as confirmation).
Once the documents are sent, signed and returned back to our firm, as many as thousands of packets must be proofed and verified for accuracy. Then the paperwork is delivered to the new custodian.
At this point, account monies must be accurately transferred to the new platform. And all of this needs to happen without any interruption in service to the client.
Aside from all that, there are of course other considerations, such as making certain all client monthly distributions continue as scheduled, and that the transfer of lines of credit to the new custodian is seamless, just to name two.
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All of this underlines the fact that the repapering of clients, especially for small to midsize firms (those with little or no experience in the process), is a big undertaking that requires a lot of planning, experience and hard work to make sure the process comes off well.
Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $4.5 billion in AUM.
