Growth with added complexity is the future for custodians who hold the assets for registered investment advisers, according to a panel of top industry executives, as RIA clients look for increased access to alternative assets, digital currencies as well as potential firms to buy or merge with.
That was the theme running through the discussion of senior executives Wednesday morning at the InvestmentNews RIA Summit panel titled "Improving the Cost, Efficiency and Integration of Custody."
There is no doubt the industry remains on a strong path of growth, executives said. Private equity managers are swarming around RIA firms with $500 million to $1 billion or more in assets, looking to buy and merge firms into increasingly larger networks. And because cash is cheap due to low interest rates, financing deals continues to be attractive.
And the number of large RIA enterprises continues to grow, as the broad stock market continues its run of record highs after the steep market downturn during the Covid-19 panic last year.
"Let’s talk about the growth of the profession for a moment," said David Canter, executive vice president of the RIA segment at Fidelity Institutional. "We’ve gone from a profession that was about 6,600 investment advisers registered with the [Securities and Exchange Commission] in 2000 to now," with 13,880 firms, he said, citing an industry report.
“So, the profession is growing, and what you can learn from the larger firms is very instructive,” Canter said. There are 851 wealth management firms with $1 billion or more in assets, he said, and of those, 166 have $5 billion or more in assets.
That's prompting the question whether $5 billion in client AUM is the new $1 billion, meaning a new watermark for large firms, he said. And 75 RIAs now have $10 billion or more in assets.
LPL Financial has focused on consulting and practice management to gain market share recently, said Marc Cohen, executive vice president of advisor solutions at LPL, and is looking to work with RIAs of a variety of stripes.
When asked about digital assets, alternative assets and cryptocurrencies, executives said custodians were targeting this area.
BNY Mellon/Pershing "is investing significantly in the digital ecosystem," said Ben Harrison, managing director and co-head of wealth solutions at Pershing. Pershing has set up a digital currency and asset business to explore the future of custody, blockchain and crypto investing and how it happens for RIA clients, Harrison said.
“It’s an incredibly important asset class and increasing in value, I suspect, as the markets continue to evolve,” said Bernie Clark, head of advisor services and managing director at Charles Schwab.
Making sure assets are safely kept is job number one, along with creating access, Clark said. "We’re seeing tremendous growth in alternatives on our platform right now, it’s unprecedented, and I expect that’s going to continue."
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