Cetera Financial Group informed financial advisers at two of its three brokerage units last Wednesday that it plans to bring custody of various IRA and savings accounts in-house at its third broker unit, PrimeVest Financial Services Inc.
Cetera Financial Group informed financial advisers at two of its three brokerage units last Wednesday that it plans to bring custody of various IRA and savings accounts in-house at its third broker unit, PrimeVest Financial Services Inc.
The change at Financial Network Investment Corp. and Multi-Financial Securities Corp. will be made in October. Cetera, with which about 4,800 brokers are affiliated, said it will continue to use its current custodian for the accounts, Pershing LLC, to clear transactions related to the accounts and to serve as PrimeVest's tax-reporting agent.
“They make it sound harmless but I expect this is the first step to moving everything to PrimeVest,” said one adviser unhappy with the proposed change who asked not to be identified. “It's just IRA accounts now, but non-qualified accounts could be next and full self-clearing after that. As advisers, we don't like uncertainty, and with the market and the economy the way they are, things are hard enough already.”
Executives at Cetera, however, deny that the move is a precursor to full self-clearing. Barnaby Grist, executive vice president of wealth management at Cetera said financial advisers at the two brokerages will continue to have the choice of using the Pershing platform for clearing, processing and reporting account activities.
“Pershing is great at what they do and we value that,” he said. “We just renewed a five-year contract with them.”
Financial Network Investment Corp. CEO Jack Handy informed advisers of the coming change on Wednesday morning by e-mail. “This gives us more favorable pricing with Pershing and allows us to reallocate these resources toward providing you a higher level of service,” he wrote.
In a page of frequently asked questions, the firm told advisers that they would not have to repaper the accounts and that the change would “have minimal impact to you and your clients.”
Two reasons cited for the change in the FAQ included: “we can process requests faster and you can start trading as soon as an account is funded,” and “we believe that we will be able to resolve situations involving account instructions more efficiently when PrimeVest is custodian.”
The adviser said he wasn't aware a fix was needed. “I've never had a problem opening accounts with Pershing. One of the reasons I'm with Cetera is because I like Pershing.” Of particular concern to the adviser is the fact that if customers want to keep Pershing for custody or prefer to use another broker-dealer custodian, the representative can no longer advise the account. “How do you think that makes me feel?”
Mr. Grist said Cetera is making the move because PrimeVest, which exclusively serves financial institutions, has the infrastructure to handle custodial functions like beneficiary designations and distribution instructions.
“We think the best place to spend our technology money is on client-facing tools,” said Mr. Grist.
Pershing declined to comment on the move.
The switch is to be expected, said Scott Smith, an associate director with Cerulli Associates.
“When you get to 2,000 or 3,000 advisers, the long-term play is to bring all these kinds of services in house,” he said. “Maybe they won't mandate this for the rest of the accounts, but once you do it for IRA accounts it's an easy transition for the rest of the business.”
