When it comes to the rapid growth of registered investment advisory firms, broker-dealers must either “feed the monster that will eat them,” or find a way to accommodate their brokers' advisory business, according to Mark Tibergien, chief executive of Pershing Advisor Solutions LLC.
“It certainly catches [a brokerage firm's] attention when they see assets [going to The Charles] Schwab [Corp.]” and other big players in the custodial business, said James Roth, a managing director at Pershing who is responsible for building the firm's services for hybrid brokers.
However, convincing broker-dealers to embrace the advisory business is still an “educational process,” said Mr. Tibergien, who attended Pershing's national conference in Hollywood, Fla., last week.
“Some [broker-dealers] still believe the RIA business is a fad,” he said. “If it is, it's a 20-year fad.”
Although keeping a representative's advisory business in-house may have once been a largely defensive strategy on the part of broker-dealers, “increasingly, it's becoming an offensive move,” said Brian Shea, president of Pershing LLC.
Brokerage firms “arguably have some supervisory risk” whenever a representative engages in advisory business, he said. “So it's an opportunity to get something in return” and participate in the fastest-growing segment of the industry.
Regulatory and cost pressures are also forcing broker-dealers to give in.
“There's pressure on [the
Financial Industry Regulatory Authority Inc.] to press their own jurisdictional boundaries” toward supervision of a broker-dealer's advisory activity, said Pershing LLC CEO Richard Brueckner, who is also a longtime Finra board member.
At the same time, the adviser/broker regulatory divide “is creating a problem for broker-dealers, with multiple regulators asking questions about font size” in customer communications, Mr. Tibergien said.
The supervision risk has caused some broker-dealers to begin charging brokers for advisory assets held away from the brokerage firm, Mr. Roth said.
Compliance risks also make it more attractive for individual representatives to do everything through one firm, he said.
Meanwhile, Pershing is looking to build up its multicustodial options, with the help of the recently announced purchase of PNC Global Investment Servicing Inc. In addition to its mutual fund accounting and administration business, the division of
PNC Financial Services Group Inc. has multicustodial capabilities through its Albridge Solutions data aggregator unit. The deal is expected to close in the third quarter.
Pershing will be integrating Albridge into its existing technology, Mr. Shea said.
Many Pershing clients already use Albridge to link to various custodians, he said, but not all Albridge clients use Pershing.
“It will be a big change for us,” Mr. Shea said.
E-mail Dan Jamieson at [email protected].
