Insight Partners and Adams Street Invest in RIA Custody Disruptor

Five years after its founding, fintech company Altruist is challenging established custodians for market share and is on target to be profitable for the first time.


Illustration by RIA Intel

Altruist, a venture-backed fintech platform and digital custodian, has garnered $112 million in a Series D funding round, bringing the total amount of capital raised since the company’s 2018 founding to $290 million.

The company also said it had raised $110 million in a previously undisclosed Series C round led by Declaration Partners, with Venrock, Insight Partners, and Vanguard participating, in November 2021.

The current round was led by Insight Partners, as well as a new investor, Adams Street. Industry leaders including Bill McNabb, former CEO of Vanguard, Ron Carson, and Marty Bicknell also participated.

The company did not disclose any additional terms of the deal. According to Pitchbook, a data company focused on venture capital, private equity, and mergers and acquisitions, Altruist was last valued at $360 million after a May 2021 Series B funding round raised $50 million. No new board members were added.

Altruist, which launched in 2019 as a fully digital, commission-free custodian built for RIAs, is challenging traditional custodians such as Schwab and Fidelity. The past year has been a year of record growth for Altruist. The company, which recently became self-clearing and acquired the custodial platform Shareholders Service Group, said revenue has grown by 1,700 percent year-over-year.

The company now claims to be the third largest RIA custodian by number of firms, although it doesn’t disclose its total assets under management. According to Cerulli Associates, a Boston-based research and consulting firm, Charles Schwab and TD Ameritrade (Schwab bought TD Ameritrade in 2020), BNY Mellon’s Pershing, and Fidelity represent 84 percent of the total independent and hybrid RIA assets under custody, as of year-end 2021. That number doesn’t include hybrid assets held under their broker-dealer affiliations.

Marina Shtyrkov, associate director of wealth management at Cerulli, said in an e-mail to RIA Intel that RIA custody is a “low-margin business that necessitates scale, making it difficult for new custodial players to successfully compete with the “big four” incumbents.” But she added that Schwab’s acquisition of TD Ameritrade “reinvigorated existing competitors and spurred new ones to try to fill the perceived vacuum created by TD’s exit.”

Mazi Bahadori, chief compliance officer and EVP of operations at Altruist, agrees with Cerulli that the custodial market is capital intensive and said that much of its previous raises were allocated to building its self-clearing business. Bahadori said that the current raise will be invested in research, product development, and the expansion of service offerings, but that the company isn’t planning any specific large-scale projects.

Altruist isn’t the only new entry into the traditionally closed custodial space. Goldman Sachs acquired Folio Financial, a self-clearing broker-dealer, in 2020, and FNZ acquired a majority stake in State Street’s Wealth Manager Services in 2021.

“Despite some appetite for custodial alternatives, only 4 percent of RIAs switched custodians in the past year. Advisors are generally willing to overlook frustrations with their current custodians, because the logistical implications of switching providers are too burdensome and they’re hesitant to introduce any inconvenience to their clients through the repapering process,” Shtyrkov said.

However, Altruist appears to have grown in a market where others are struggling to gain a foothold. Bahadori put part of this growth down to Altruist’s paperless, seamless digital conversion process. He explained that moving a client’s book of business to Altruist takes just a single e-mail to the client. “The e-mail opens, they accept [the] new terms and conditions, and that’s it. It’s literally as simple as the ‘Buy Now’ feature on Amazon.”

According to Bahadori, not only have the company’s assets tripled in the past year, but after Altruist became self-clearing last month, the company has quadrupled its assets under management and nearly doubled the number of firms it serves.

“There are 3,000 new [RIA] firms that are formed every year in the United States at the state and federal registration level. So that’s thousands of new RIAS that are coming online,” Bahadori said.

The company also says that it’s on track for profitability for the first time since its founding.

“We don’t compete with the advisors. Schwab and Fidelity have retail businesses, and they’re trying to acquire the same clients that their RIA customers are trying to acquire,” Bahadori said. “[But] we never are, and we never will. Advisors know that they can come to a custodian that is exclusively designed and built for them.”

Schwab reached out after the story was published and said that they have strict policies and guardrails in place to avoid intentionally or inadvertently competing directly with the independent RIAs that work with Schwab.

“Specifically, we don’t 1) contact advisors’ clients; 2) provide advice or recommendations to Advisors’ clients; and 3) market Schwab’s advisory services to the clients of independent RIAs on our platform. We’ve also stated multiple times that if an advisor ever feels that we are approaching a prospect that they are targeting, Schwab will stand down,” a representative for Schwab said in an email. “Schwab strives to put the investor at the center of everything we do. We’ve always believed in encouraging a range of choices and flexibility to enable investors to choose the right approach to managing their money. At the end of the day, we’re going to continue to do right by investors, based on their needs.

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