Insider’s Guide: Selecting The Right RIA Custodian

The Importance of Choosing the Best RIA Custodian

Choosing an RIA custodian is more than a checkbox on your to-do list—it’s about selecting the backbone of your day-to-day operations. From client onboarding and reporting to managing compliance and even proxy voting, your custodian will influence nearly every aspect of your business.

In this episode of the Oyster Stew podcast, our experts, Dan Garrett and Jay Donlin, take you on a deep dive into the world of custodians. We’ll explore everything from full-service solutions that handle your middle office needs to niche players specializing in FinTech and money management. Whether you’re a breakaway advisor, a FinTech firm, or an established registered investment advisor (RIA) looking to make a change, this podcast will equip you with the insights you need to make an informed decision.

Hear from industry veterans who have been on both sides of the table—as custodians and as clients. Dan and Jay break down the decision-making process, from understanding service levels and operational support to evaluating technology and product offerings. Learn the key questions you should be asking and the factors that will make or break your custodian relationship.

What You’ll Learn:

• The day-to-day realities of working with a custodian
• How to evaluate the service and support models of potential custodians
• The importance of technology integration and data accessibility
• How to manage vendor relationships to avoid costly disruptions
• The pros and cons of using your custodian’s client portal versus building your own

Don’t leave this critical decision to chance. Join us on the Oyster Stew Podcast and take the first step toward finding the best custodian for your RIA.

Additional Resources

Starting An RIA – What You Need To Know Before You Go

Growing Your RIA Business

Outsource the Selection Processes

The custodial contract is one of the most important contracts your firm has. If your organization is like most, everyone is busily focused on the day-to-day job of running the firm.  Engaging a knowledgeable partner to guide you through the process will take some of the disruption pains away. For example, the Request for Proposal (RFP) process from potential providers can run three to six months and, if done well, takes a lot of focus and attention.  Many firms don’t have the time and staff to embark on such a journey alone.  Find a partner that can help guide you in making the best decision for your firm. 

Oyster Consulting is the partner you need. Our consultants stay current with major custodial firms, their service offerings and representative clients. We use our industry experience to help you review your current contract, ensure business alignment, negotiate better terms and transition to a different custodian provider. 

Transcript

Transcript provided by TEMI

Bob Mooney:  Welcome to the Oyster Stew Podcast. I’m Bob Mooney, General Counsel for Oyster Consulting. In part three of our series on starting your RIA, we’re diving into one of the most critical decisions you’ll make – selecting the right custodian. Custodians are more than just a place to custody your assets; they are the backbone of your day-to-day operations, influencing everything from client onboarding and reporting to proxy voting. Join Oyster experts Dan Garrett and Jay Donlin, as they explore the range of custodian offerings from full-service solutions that handle your middle office needs to specialized services, tailored for FinTech and money management. So, let’s get started on this important journey to select the perfect custodian for your RIA.  Dan?

Dan Garrett:  Thank you, Bob, so much. I’m here with Jay Donlin. This is Dan Garrett. We’re going to be talking to you today about picking your custodian for your RIA.  Jay, if you want to do a little introduction, I’ll follow up.

Jay Donlin:  Yeah, Jay Donlin. I’ve been with Oyster little bit over five years now. I’ve been on both sides of the table as a Chief Operating Officer, as well as started clearing firm and introducing firm as well. So, I’ve got a broad base of experience, been on all the various platforms as a client, have also advised many firms on selection of platforms. And so, I think it’s going to be a great conversation, Dan.

Dan Garrett:  Yeah, I agree. So, I’ve been in the industry for 25, 30 years now, primarily in RIA operations. I have worked at broker-dealers and at clearing firms that have supported RIAs. I’ve been kind of in on both sides of the of the equation, both the clearing firm and the RIA and supporting those two things. So, we’re going to talk about picking your custodian and what that looks like today. Jay, do you want to kind of talk about your experience? I know we’ve done, here at Oyster, a lot of engagements where we’re helping RIAs find and negotiate agreements with custodians. Can you talk a little bit about that?

Jay Donlin:  Yeah, I think everybody is aware when you start an RIA, you have to pick up a qualified custodian as your partner, or multiple qualified custodians. There are numerous options out there, all different sizes, all different levels of service technology that they offer, that sort of thing. And, so, there’s the huge organizations that everybody kind of has as their core, but then there’s also some niche players that people end up using for specific reasons, whether it be trusts or outside money managers, that sort of thing. So, there’s a broad base of things that you just need to go through a decisioning process and determine, what do I need? What’s my important factors, my needs, wishes, wants for my clients, as well as what do I want to have my book structured in?

Custodians have various levels of services, meaning some of them provide a lot more, I’ll call it “operational administrative support.” Usually that’s a kind of a middleman type – I’ll call it middle office type solution. And then there’s other ones that are just bare bones custodians. The pricing varies across the different platforms based on the services and the technology they provide. The large organizations that people tend to gravitate to have very good technology. They might only have limited technology in order to service accounts and trade, and very little in the way of operational type support or administrative type support. And then there’s others that are very high, rich technology and support as well. And so, you’ve got to decide, what are you looking for in that respect? So again, a lot of options in the marketplace.

Dan Garrett:  Let’s talk about what typically we see in terms of the interaction between the custodians. Like what is going to be your day to day if you’re an ops person working with your custodian. And I think it’s important to talk about that, just to give a broad understanding of things that custodians do, the things that they don’t do, what you’re going to have to do in the interactions that you have with them whether that’s with their operations folks or with their technology. Can you talk about that a little bit and just a day in the life? What is it like to have a custodian?

Jay Donlin:  Custodians have gotten really good at, I’ll call it self-empowering individuals out in the field. And that’s by design, right? You can’t afford to have tons and tons of staff on the custodian’s perspective. You need to give them the field. And when I say field it’s advisors, it’s sales assistants at that level. You’ve got to give them tools in order to be able to process themselves or go find the answer themselves. And most of the custodians have this capability fairly well-built out in their systems. There’s also the ability to kind of put I’ll call it a service request in where you say, “Okay, I need to do this update. I can’t really figure it out. I want to put a service request in for somebody to kind of grab it and run with it at the custodian, or you know, call me.” And you can put that in the systems, and they can track, statuses and that sort of thing. so, you’re understanding where things are. But, at the end of the day, sometimes it takes a phone call, and you want to make sure that you can pick the phone up and call. Whether you have a dedicated group of people that you deal with, depending on the size of your RIA, will depend on the support level and the dedication that they’ll structure within that organization. But you want to make sure that at the end of the day, you can still pick the phone up and call and get somebody that’s empowered and now knowledgeable in order to deal with your issue.

So, they’re important things, but that’s the something that you need to basically get some sort of confidence in when you’re talking to various custodians. “How do I interact every day with you?” Or, “my clients, if a client has an issue with logging into their online access, who do they call? Do they call you; do they call a back office? Are you empowered as an advisor to help them? Can you see what they see?” That sort of thing. These are all things that people have to deal with daily in servicing client accounts on the various custodians.

Dan Garrett:  Yeah, that’s a great point. Something that you may not even think about is how is that ongoing service – what does that look like? Is it a ticket? What is the service level response? Do they document turnaround times for getting back to you? And what are they trying to stick to? I think that’s really important to think about and talk, and just to be able to see what a demonstration of what that looks like. You’re right, though, there’s different levels.  That’s an important point that you touched on, which is depending on your size, there is different levels of support. And that may be a factor, too, that you want to consider as you’re looking at different custodians, because you may be at different levels and have different levels of support, depending on the size of the custodian.

If you’re a small firm and go with a very large custodian, you may not get a lot of attention. If you’re a small RIA and go with a smaller custodian, you may get more attention. I think it just depends on asking those questions and understanding that service and support model that you’re going to get with that firm.

A lot of that comes back to a point that you made earlier about some of these custodians being niche players. We know of a particular custodian that’s very, very tech forward, so if you’re a FinTech company that wants to be an RIA, you may want to look for a very high-tech custodian. What are some of the other kind of niches that you’ve seen out there? Maybe, kind of advisory versus money manager versus FinTech. What types of niches would be some good examples, Jay, that we could discuss?

Jay Donlin:  Yeah, there are several that we have experience with that have, I’ll call high service. So, you could be a one-man RIA and outsource middle office and support to these other groups. There are, I’ll call them high service organizations but, there’s a cost to all that. The other thing is, a lot of times people will find a portfolio management company that has portfolios that they find would be beneficial to their clients. And they’ll key in on that organization as, “Okay, this is where I’m going to build my business because they provide portfolios that I feel would benefit my clients.” They’re niche players with respect to money management as well as the service side.

You mentioned FinTech, very tech forward firms that are out there that you can choose from that deploy full desktops. Everything is built for you. You don’t need to manage anything. You can get one of those FinTech, I’ll call them FinTech RIA custodians, to be your partner. But it all goes back to decisioning. What is important to you? What do you want to own? What do you not want to own from a technology perspective or even a client service perspective, if you’re good at partnering with somebody that can help service your clients, and they’re not directly in your office. There are providers out there that can provide that service to you. So yeah, all important questions that you need to go through and decide how you want to do business.

Dan Garrett:  Let’s talk about products a little bit. Some of these custodians have a large suite of products, asset managers that you can select from and full-blown advisory products that you can use off the shelf. And then there’s a lot of other firms out there, TAMPs and so forth, that you can hire to help manage your assets. But let’s unpack that a little bit and just talk about things that you can expect from a custodian, why you might want to go with them versus working with some of these other asset management firms that give you access to lots of different products.

Jay Donlin:  All the major custodians have a broad base of product that you can leverage on their platform. Back prior to the Great Recession, there was a move to kind of outsource money management. A lot of people were outsourcing money management to either in-house money managers or third-party money managers. Once the Great Recession happened, people were a little concerned because a lot of the outside money managers didn’t react to the Great Recession and the downturn as effectively as they felt like they could. So, there was this big shift, and there still is, a shift of advisors. We call them advisors, portfolio managers where the advisor is making all the decisions, doing all the models, that sort of thing. And it all depends on how you want to structure your business.

These other custodians do have value in what they provide when it comes to portfolio management. They have models. They manage the money to those models, and so, it’s something that you have to decide: Do I want to be a money manager, or do I want to be a relationship manager and have somebody outsource the money management? I can be the expert, the trusted advisor, but outsource the money management to these other firms. And they do offer pretty good portfolios. It’s something that everybody should look at. Again, it’s a cost. So, you have to decide, is it cost effective for me to manage my own money versus what they’re going to charge? And can I leverage their capabilities of being able to money manage the money more effectively so that I can go out and land new assets or service my clients better from a relationship management perspective and client service perspective.

These are all things that the custodians will allow you. Most of the major custodians will allow you to interact however you want to interact. And, if you want to be a money manager, you can be a money manager. A lot of them will provide tools that you can utilize in order to do all the mechanics related to that. They’ll provide research, that sort of thing. But you could also outsource it to them and focus on just servicing or going and obtaining new clients.

Dan Garrett:  It’s so broad, and we’re keeping this somewhat general in terms of RIAs. It could be a FinTech company that needs to have an RIA to support their business. It could be a breakaway advisor that has a practice right now, but they want to become their own RIA. And so, there’s lots of different forms of RIAs and the type of business that they do. So, let’s talk about the products and product offering and why that’s important. You know, if you’re new to this, you really need to decide what that product mix is going to be and whether those custodians support those products. And a lot of that comes with tools and operations as well, because in a lot of cases, especially for breakaway advisors, there’s a lot. You’re now going to have to provide all of the tools that you need to run your business.

And the custodian of choice can usually provide a lot of those tools. They come with those things baked in, but not always.

Sometimes you need to go out and buy third party applications to round things out, whether that’s a CRM or a planning tool. Can you talk about the importance of that? Because I see a little bit of both. I think we’ve run into situations where RIAs have selected different technologies, and sometimes it doesn’t play nice with the custodian. It’s hard to get data out of the custodian and those types of things. I want us to talk about understanding those requirements of what you need from the custodian, both from a tool technology standpoint or even from a data feed standpoint, something that gets overlooked until the 11th hour when you’re actually trying to get some things hooked up.

Jay Donlin:  Yeah, Dan, it’s a great point. So all the custodians have different ways of integrating with different vendors, how deep they are, how many, I’ll call it how many fields, how many files, that sort of thing. Whether they, if you’re going to select, I’ll call it, an off-the-shelf FinTech provider to close a gap or perceived gap, or you want to enrich the experience for your advisors or even your clients, you need to do really good due diligence on what level of integration does this FinTech provider have with this custodian or my multiple custodians that I’ve chosen? And, because a lot of times we’ve seen a lot of people buy a package they get sold, this is a whizzbang technology piece, it can save me time – and then they end up not integrating well, and it causes, I’ll call it, swivel chair data entry and that sort of thing. It becomes frustrating for the firm because they invested a lot of money into a product, and it didn’t give them what they needed or wanted. So, each of the custodians have different levels. They have different preferred providers. And a lot of times you can ask them, and they’ll provide, this is the level of integration, whether it’s bidirectional or if it’s nightly files, that sort of thing. So, these are all important things to ask when you’re looking at integrating with one of your custodians.

Dan Garrett:  Yeah, I love that because I think that the sales folks are out there trying to close the deal and I think you should trust but verify, and ask the deeper questions, not just getting a list of all the technology that they support. But then, like you said, taking it to the next level of saying, okay, how exactly is that supported? Or, can you provide some references that use this particular tool, which is critical to my business, and I need to make sure that you’ve got other RIAs using this and are happy with those integrations. So these are key things. I think so many folks focus on the price so much and don’t worry about the details, but you don’t want any surprises when you make this.

It’s a commitment, signing the agreement with a clearing firm, and you don’t want any surprises down the road, especially if you’ve got particular tools that are specific to your business and that you absolutely need them to run. Make sure that you spend the time working with your custodian from the get-go. You make sure you’re meeting with the people that are going to be supporting and servicing you. Get a good feel for who those people are, what their knowledge level is, and how you know you can work with them going forward.

It’s not just sign the agreement and move on. You need to keep up a relationship with your custodian. You need to know what they’re working on, new things that are coming out, changes that are occurring. Jay, do you have any other comments about that? I think vendor management is just such an important thing to be ongoing.

Jay Donlin:  Yeah, it’s a very important thing because, for instance, if you have a vendor that maybe doesn’t have a tight relationship with a custodian, and the custodian is making some significant changes to data fields or something like that, they may not have the notification in time that they could react when something changes. And so now you’re broken, right? Your piece of technology’s broken and you have to wait till somebody gets around to fixing it. Being on top of any changes at the custodians or any changes at your particular vendor that you’ve purchased outside of the custodian, and thinking ahead as to, okay, how is this going to impact me or my integration with my custodian – that’s super important. You can chalk that up to vendor management, but it’s also a little more technical than some people would like to be involved when they go buy a piece of software or product to a FinTech product. It’s very important because these become critical systems in your day-to-day, and you can’t have a critical system go down for a couple weeks while somebody goes in and fixes it. So yeah, vendor management is important.

Dan Garrett:  Jay let’s just shift the gears and talk about the interaction between your custodian and directly to your client. The custodian – you’re bringing them on to take over and take responsibility for some of the regulatory reporting that needs to occur. That could be statements, monthly statements or annual statements depending on activity. There’s confirms, there’s 304 letters. There are all kinds of things that come out of the custodian and go to your clients, and this may even include a client portal. Let’s talk about the importance of those types of things because I know that sometimes, it is a frustration point of the frequency of the documents, for example, especially with advisory accounts, if you’re doing a lot of trading in those accounts, things like confirms, are they sending out an individual confirm statement, you know, making sure that they have electronic delivery versus paper because you don’t want to be sending out tons and tons of paper to your client. Let’s unpack that a little bit and talk about some things that an RIA that’s looking at a custodian may want to ask or think about.

Jay Donlin:  Yeah, Dan, it’s important. A lot of people figure it’s important to brand properly, right? And so, all these custodians, all the larger custodians, let’s say it that way, they have created the ability to have your shingle basically on, I’ll call it the key documents, the statements, the confirms, and some client communications. But you know, they’re the broker dealer in the arrangement when you’re an RIA. They do have regulatory obligations to basically have their name on it and show the broker dealer name on it. They do try to minimize it as much as possible. But you’re still going to have pieces go out with the name of the broker dealer who frankly could be a retail competitor of yours on the other side of the wall. You have to be comfortable with the fact that you’ve picked the right partner, that you don’t view that as a problem.

I would ask them, “What is branded with my RIA name on it, what is not?” Again, you nailed it on eDelivery of various materials. They all, meaning the custodians, try to push it and most people want it, but there’s still a lot of clients that don’t want to do eDelivery. They still want paper. These are the questions you need to ask. Is it forced upon clients? Is it optional? Does it cost anything? Because some custodians charge for paper. And so, you want to make sure that all those questions are asked when you’re shopping around for a custodian.

Dan Garrett:  Yeah, I think one of those items, and I know I struggled with it for many years, was bundling, right? Bundling confirms, bundling statements. You know, an advisory account may have multiple money managers, they have multiple accounts sometimes if you’re not doing UMA accounts. That just adds up to a lot of paper. If somebody does want to receive paper, it’s best to make sure that information is being bundled.

Let’s talk about the client portal, because obviously a lot of these firms would provide client portals, like you said. Most of them allow you to brand it to some extent. Definitely put your logo on, maybe change colors, but let’s talk about pros and cons of using your custodian’s client portal versus using something else that you’ve built, and then concerns around if you’re going to build it, how do you integrate with all the custodial regulatory needs that need to be provided to your client? Because what you don’t want is clients logging into one system to get certain bits of information and having to log into another system to get others.

Jay Donlin:  Yeah, this goes to the age-old problem. Do you build it, do you buy it, or do you rent it? Right? If you use the custodian’s platform, you are kind of, even though they do have some flexibility on how they’re structured. They’re kind of canned and its, okay, this is what you get, and you can turn on a few things. You can turn off a few things. Some of the custodial platforms allow clients self-service, some RIAs don’t like that. And so you want to have that conversation, “Hey, can this be turned off?” And when I say that I mean I want to send out $5,000, I want the client to be able to do that, or I don’t want the client to do that because I want to be in control of all money movements and that sort of thing. Or address updates, things like that. Do I get notified?  These are questions you need to ask the custodians. How does all that operational processes occur with that? But in their system, it’s pretty much a little bit flexible, but it’s their system.

Then, you can go buy one through one of the various providers that are out there. Typically, they are portfolio management systems and client reporting systems. They’ll have a site that you can display to clients or push out to clients. A lot of times the problem with those sites is they’re not in real time. They’re as of last night’s close. Clients want to see up-to-date data. So, these are things you’ve got to be cognizant of. Some of them are getting better and better at getting updated data.

You might have to click a button to refresh to get it, but some of them do now have it available. And then to build it that’s a huge undertaking. Regulators will typically ask you, hey, do you basically build and manage your own website? That opens up a whole other can of worms on a regulatory perspective, as well as just a tech debt that you incur and trying to build and manage that sort of product. So, a lot of decisions that you have to go through on how you want to interact with your clients, and it’s something that takes a lot of time to figure out what you want to do and with respect to them being able to access their client data online.

Dan Garrett:  Some of the questions are, or what you’d want to see, is ask for a demo of what does the client access look like? Can you brand it? And if you do want to do something outside, then you want to make sure that vendor is working currently with that custodian is bringing in confirms and statements from that custodian and other documentation proxy voting, you know, is another area that may be of concern, whether you’re voting them or your clients are voting them, what does that system look like? Is it another system that the clients need to get into? So yeah, those are things that should definitely be on the checklist of things to ask your custodian about or the firm that you’re looking to work with.

Jay Donlin:  And Dan, let me jump back in there. You had a good point about proxy voting and prospective delivery and things like that as well as consolidated confirms. You have got to make sure your agreements allow for it, right? As an RIA that’s one important thing you need to look for in your agreement and construct it that way. But the other thing is you need to ask the custodian what their capability is, right? Can they bundle? I’ve seen custodians that can’t or don’t, but also there’s kind of a flavor in between. You need to make sure that whatever your expectation is, is met with what your agreement provides that you’re able to do for your client. Typically, like outside managed accounts, a lot of trading, a lot of model trading, a lot of confirms. So, it’s important to understand that capability with that custodian.

Dan Garrett:  The other big area that I wanted to talk about is account opening, that process that’s right at the beginning, which is so important – it’s usually cumbersome. That process too, should be reviewed. Let’s go through an account opening. What does that look like? What do I need to do as the RIA, what does the client need to do? Is it electronic? Is it paperwork? Is there a workflow system? Do I know at different points of the process where that paperwork is in getting it completed and the account opened with that custodian? I think that those are critical things. Some firms get that really right, and some firms don’t. But that’s just such a critical step because it’s really, from a client perspective, it’s one of the first processes that you want to take them through is that onboarding process.

And it can hurt the relationship if it’s not clean or smooth. So, thinking about how do you want to work with your clients on that account opening process? Are you doing it in person in the office? Do you have an administrator that’s sitting down with them at a computer? Are they sitting down with paper? And just making sure that your custodian of choice is providing you the right tools to be able to do that. And if not, there are vendors out there that help with account opening and process flow and workflows and things like that. Do those vendors work with your custodian? What does that look like? You want to make sure that data entry is kept to a minimum so you’re not entering the same data over and over again into different systems. Jay, just any other thoughts on the account opening process and what we should think about when selecting a custodian?

Jay Donlin:  Yeah, definitely. A lot of the custodians, the major ones, have developed these digital onboarding solutions, and they’re getting better and better every day. And it streamlines the new account process. We’re all used to talking about new accounts where they’ve changed the model a lot of times at the various custodians to the client base. We’ll just use me as an example – so Jay has an individual account, he has a joint account with his wife, and he has an IRA. You shouldn’t have to key in three different accounts. Basically, you go through a digital onboarding process, you’re keying in the information, selecting the type of accounts you want in the background. The system is building out all the various paperwork, all the disclosures, and there’s one signature at the end of the day, not an account-by-account signature.

And the custodians, the major custodians, have all been moving down this path. Some are ahead of others. It’s very important that you make sure that if you’re going to utilize the custodian’s onboarding process, that you’re comfortable with that process and it can fit into the way you do business, right? Whether it be over the phone with the client, whether it be on a tablet sitting at the client’s table, or they’re in the office and you’re just going through a questionnaire with them and getting it started. Most of them, in that digital onboarding process, if you don’t have an answer to a question, they’ll let you move on. When it gets to the client, it forces the client to fill out whatever the question was or answer the question. It’s kind of unique and it’s really streamlined the process from when you and I started in the business 30 years ago.

It’s just something that you really need to look into with respect to outside vendors. There’s plenty of outside vendors that can streamline new account processes. Again, it goes back into the integration piece. We’ve got a client right now that contracted with a vendor, their custodian is a closed custodian, I’ll call it, from a technology perspective. So they bought this process, they have a pretty streamlined process for opening new accounts, but then they have to turn around and key it into the custodian, and that just doesn’t help anybody with efficiency. It’s very important to go down the path and determine how you want to interact with a custodian in that respect and pick the one that you feel fits your model the best.

Dan Garrett:  Let’s talk about the selection process. We’ve really touched on a lot of different areas of things that should be looked at or questions that should be asked, but who should be involved, you know, in the selection process?

Jay Donlin:  Usually, a lot of times it’ll be executive management that kind of takes up the banner or the owners of the RIA who take up the banner for the search for the custodian. But when it boils down to it, you really want to have support personnel as well as some reps maybe, or advisors look at the custodians and provide input. We found that if you get people involved early that are going to be doing the day-to-day interactions with the custodians, with the clients, using the tools, it seems to come out to be a better process at the end instead of just picking executive management, just picking a custodian and saying, this is where we’re going. You need to have people buy into that process and be involved. Because they work on it day to day and they kind of understand pitfalls and what’s needed and what won’t work and what will work, it just seems like to me it’s better to have a broader audience involved. I’ll call it a trusted group of individuals that go across the organization in the various roles that can help in that selection process.

Dan Garrett:  That’s great. Jay, this has been a lot of fun. I really appreciate the conversation with you. Thank you. Yeah,

Jay Donlin:  Great conversation, Dan. Thanks.

Bob Mooney:  Thank you for listening. If you’re thinking about starting an RIA or already on that path, Oyster has the expertise you need to set your firm up for success. Don’t miss our other podcast in the series and contact us at oysterllc.com. Have a great day.