This content is from: Wealth Management

The Tortoise Custodian Claims It Will Win the RIA Race

Why BNY Mellon’s Pershing waited so long before making its move.

On Oct. 1 last year, Charles Schwab stole the spotlight from Interactive Brokers, announcing plans to eliminate commissions to trade U.S. and Canadian stocks, ETFs, and options. The move crushed the stocks of competing discount brokerages and set off a series of other business decisions and deals. 

TD Ameritrade and Fidelity Investments followed Schwab’s lead and eliminated the same trading fees in the days that followed. The last day of October, Interactive Brokers, the first to axe commissions for some securities, followed those three and extended it to the RIAs that custodied client assets with it.

Research analysts expected mergers and acquisitions might come next, and they did. In November, Schwab reached an agreement to acquire TD Ameritrade for $26 billion. Morgan Stanley bought E*Trade in February for $13 billion.

Missing from all the action was BNY Mellon's Pershing, a custodian to over $800 billion belonging to clients of more than 700 RIAs. 

That changed this week. On Tuesday, Pershing announced that Mark Tibergien, the head of its RIA custody business and a well-regarded executive, is retiring. Benjamin Harrison, the unit’s head of business development and relationship management, will take Tibergien’s place June 1. Only two days later, Pershing entered the custody fee fray.

Pershing had the luxury of patience and now it's equipped — and priced — itself to compete for any RIA in need of a custodian, according to Harrison.

“The [custody] business has been priced on a direct to retail, discount brokerage environment. We didn’t have to pull the trigger quickly because we don’t have a retail business,” Harrison told RIA Intel.

“You saw this domino effect in the marketplace and what that ended up doing was leading us to where we are today, the consolidation and rollups. We were able to be market observers and talk to our clients and think about the future of the business rather than the past economic model.”

Pershing claims it is different, largely because it is the “only remaining custodian that does not compete with advisors for retail assets,” according to a statement this week. That is not technically true. Altruist — a new digital, commission-free custodian for RIAs with no retail business — promised in September it would save advisors up to 90% on technology and custody costs and launched this week. However, the first public version of Altruist is missing a few account types and lacks integrations with financial planning software, which will be available in the coming quarter, the founder wrote in a blog post.

In addition to the absence of a retail business competing for the clients of its RIAs, Pershing has the “broadest and deepest capabilities” to serve wealth managers and new pricing models to serve ones that previously might not have considered it.

“We are absolutely laser focused on growth,” Harrison said.

A new subscription-based pricing model will simplify costs and make them more predictable for RIAs, the company says. All transaction fees for equities, ETFs, mutual funds, and fixed income are included in the subscription, which will start as low as $25 per account, per month, and rise in cost depending on the size and complexity of the account.

It also introduced a zero-transaction-fee pricing model for RIAs interested in a lower-cost “solution for portfolios that favor equities and ETFs.”

Pershing will continue to offer the variable pricing that it has since the firm began custodying RIA assets.

The pricing models preferred by RIAs are determined by the types of investors an RIA works with and their needs rather than the sum of assets they manage, Harrison said. 

“I think one thing that’s really important to note is that nothing of value is ever free. “We’ve never tried to be a discount provider, we think we’re value a provider,” Harrison said. “Where we see the future of the business going is really around choice, alignment and transparency.”

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