Why Pershing is cherry-picking the robo-advisers it offers its clients

The custodian and clearing firm is quietly building an offering of digital advice integrations it offers its clients.

Pershing has chosen to integrate a variety of robo-advisers as opposed to building or buying one, and has started with four very different choices.

Bank of New York Mellon’s Pershing, a custody and clearing firm, is adding three new digital advice offerings via partnerships with Jemstep, SigFig and Vanare. These will be implemented in the third quarter, coming right after the company’s annual conference in Orlando. At last year’s event, Pershing announced it was working with Marstone, an institutional online investment platform.

Although all four tools are automated investment-driven platforms, they each have their own approach to working with and for advisers.

Marstone, which just finished its integration with Pershing and has begun onboarding clients, offers itself as a traditional asset managing platform advisers can put their clients’ money on, or as a front-end service on which advisers can input their own models. Jemstep, acquired by Invesco earlier this year, provides robo-adviser software to advisers, as well as investment strategies from its new parent company, and integrates with existing advisory firm systems. Vanare, which acquired robo-adviser NestEgg in December 2014, has software that can be broken down into separate parts, such as online accounts only. Meanwhile, SigFig was originally a direct-to-consumer model that is now in the business-to-business sector and has set its sights on institutions such as banks and insurance companies.

Pershing based its decision on user interface, the capabilities and flexibilities these robos delivered, and how current users perceived them, said Mark Tibergien, chief executive of Pershing Advisor Solutions.

“We don’t have the luxury of a single solution, based on the variety of our clients,” Mr. Tibergien said. “We have to be flexible but also thoughtful with who we integrate.”

Pershing is also working on its application program interface, or API, store, where approved vendors will receive coding and documentation to more efficiently create and test software products on a self-service level.

Industry watchers have compared Pershing’s new partnerships to similar moves by TD Ameritrade Institutional, another adviser custodian. With Veo Open Access, TD integrates with more than 100 third-party vendors, including 16 digital advice tools.

William Trout, a senior analyst with Celent’s wealth management unit, said Pershing is “curating” its selections.

TD doesn’t “need to be that picky — the more the merrier,” Mr. Trout said. “Pershing needs to be more strategic because, at the end of the day, they are a service provider.”

Mr. Tibergien added that the custody and clearing firm is following an open architecture approach and picking a slew of partnerships because that’s what’s needed to keep up with evolving technologies in the industry.

“That has been a direction really dictated from the complexity of our business, rather than the nature of our competition,” he said.

Jon Patullo, managing director of technology product management at TD Ameritrade, said TD has been working on its list of integrations for five years, and online advice platforms in particular for a year and a half. The custodian is now taking these integrations a step farther by offering Veo One, a dashboard with selected integrations, expected in the fall, he said. No robo-advisers are slated for the initial release, but the company is working closely with the vendors to add them to the platform, he said.

“What we are hearing from advisers is the integration helps drive efficiency, but they love to have everything on one platform,” Mr. Patullo said.

Pershing clients will have access to these robo-advisers on its dashboard, NetX360, but will be charged directly from the vendor. Mr. Tibergien said the firm may partner with more robo-adviser vendors in the future, but there are no additional collaborations at the moment.

Digital advice has an undeniable presence in the financial services industry, now more than ever. Cerulli Associates expects these platforms to reach $489 billion in assets under management by 2020, an increase from $18.7 billion as of last November.