3 Reasons Why You Must Review Your Clearing Contract

Why Your Clearing Agreement Matters

Your clearing agreement is the backbone of your brokerage firm’s operations, yet many firms fail to review it until it’s too late. In this Oyster Stew podcast episode, Oyster Consulting’s David Williams and Peter Sheehan break down why your clearing contract should be a top priority, how the industry has evolved, and what firms should consider when evaluating their agreements.

The clearing agreement is not just a piece of paper—it touches every area of your business.

From operations to client relations, advisor management, and executive strategy, this vendor contract is foundational to your firm’s success. As David and Peter explain, many executives fail to prioritize it, even as the expiration date draws near. In this segment, they emphasize why reviewing and updating this agreement regularly is crucial for staying competitive and aligned with your firm’s goals.

The clearing industry has transformed significantly, with pricing models shifting away from transaction-based charges toward fee structures centered on balances and advisory services. Modern agreements emphasize cash positions, mutual fund assets, and advisory account balances rather than trade volume. Meanwhile, older contracts often accumulate unnecessary “a la carte” fees that silently drain profits year after year. With roughly half the clearing providers that existed a decade ago, each remaining firm offers distinctive technological capabilities and relationship management approaches that might better align with your specific business needs.

What You’ll Learn in This Episode

• Why Your Clearing Agreement Should Be a Priority
• Key Warning Signs: When to Review Your Contract
• How Pricing Models Have Evolved
• Hidden Costs and Contract Pitfalls
• Should You Consider a New Clearing Firm?

Listen Now:

From pricing models to advisory programs, hidden fees, and the right technology, David and Peter share their decades of expertise to help you optimize your clearing relationship and ensure it aligns with your firm’s growth and strategy.

Additional Resources:

Cut to the Chase – Get the Best Clearing Firm Options

Is Your Clearing Firm Helping You Grow?

Making Your Clearing Firm’s Technology Work for You

Need Expert Guidance on Your Clearing Agreement?

Oyster Consulting has helped over 100 firms evaluate their clearing agreements, uncover savings, and optimize their clearing relationships. Now is the time to take stock of your clearing and custodian firm relationship and ensure that it is doing its part to keep your firm growing. Our consultants stay current with major clearing and custodial firms, their service offerings and representative clients. We use that knowledge to help you review your current contract and offer a comprehensive strategy to make sure you get optimal value. If your contract is expiring or if you want to ensure you’re getting the best possible deal, contact Oyster Consulting today.

Transcript

Transcript provided by TEMI

Libby Hall: Welcome to today’s episode of the Oyster Stew Podcast. I’m Libby Hall, Director of Communications for Oyster Consulting.  Your clearing agreement is the backbone of your brokerage firm’s operations, yet many firms fail to review it until it’s too late. In this week’s episode, Oyster’s David Williams and Peter Sheehan break down why your clearing contract should be a top priority and what you should consider when evaluating your agreements.

You’ll learn:

• Why your clearing agreement should be a priority
• Key warning signs for when to review your contract
• How pricing models have evolved
• Some hidden costs and contract pitfalls AND
• Considerations for exploring the marketplace

From pricing models to advisory programs, hidden fees, and the right technology, David and Peter share their decades of expertise to help you optimize your clearing relationship and ensure it aligns with your firm’s growth and strategy.

Let’s get started – David?

David Williams: Thank you, Libby, and it’s great to be here today. I’m David Williams and I’m with Peter Sheehan, and we are with Oyster Consulting, and we’re going to talk to you today about your clearing agreement. Both Peter and I have been in or around the clearing business for, let’s just say, many, many decades, and we’ve participated in all different parts of the business from operations to onboarding to business development; all the different areas that encompass a wealth management firm. So, I guess what we want to talk to you today about is why should you be focusing on your clearing agreement?  You would think that it should be at the top of the list for most executives or most owners of broker dealers, but in reality, it usually isn’t. The reason why it should be at the top of your list is that it is the most important vendor contract your firm has.

And think about what a clearing contract, a clearing relationship does. It basically touches on every single aspect of your business. It certainly touches your clients, touches your financial advisors, your support staff, your executive team, and charts the way for your firm to move forward with whatever business direction you have. And it’s amazing to us that most executives do not bubble this up to the top of their list, especially around the time that the contract term is expiring or it’s near the contract term expiring, which is the time that you should be focusing on that. And many firms let that expiration date come and go. A lot of the time, it’s many, many years post expiration since they’re actually thinking about it again. Things really change pretty dramatically in a period of time like that as our business evolves. So, the first thing I would certainly emphasize to those listening would be to pull your clearing contract, see when the expiration date is, and certainly think about the types of things that you need to do to possibly bring it up to speed. Because it is the most important contract for your firm is reason number one, why you should be focusing on it. Peter, why don’t you talk to us about what reason number two is?

Peter Sheehan: Yeah, David, I appreciate the opportunity to be here as well and I’m excited to talk about clearing contracts. Certainly, as you mentioned, I have a lot of experience in this area over many, many years in the industry, and certainly also within Oyster. But, Dave, in addition to certainly looking at the expiration date, and clearly, if it’s more than five years old, that’s a definite red flag that you need to look at very closely. And that’s an area where we can help. But not only that from an age standpoint, but from a business standpoint as well. If your business has changed in the last few years for whatever reason, maybe there’ve been some new large recruits that have joined the firm or maybe you’ve moved in a different direction with the business model and are now doing more business as a result, that also necessitates that you should probably look in and have a conversation with your clearing firm.

And so that combined with the fact that the models of pricing in general that we’ve seen over the years has really evolved and changed. It’s really more so about, and this is kind of in concert with the evolution really to the business in general, moving more into advisory. It used to be about transactions and ticket charges and driving trades through the firm. It’s really less so about that now. And ticket charges are a minor component of the overall contract, and there’s a lot of other areas within the contract, especially around advisory programs where you’re being charged basis points. Or you can structure a basis point arrangement if you do not have it right now. Especially if you’ve put together your own proprietary program. And there are areas that the clearing firm can help you with if you’re not already engaged in working with them on your advisory business and broadening that and adding some different components to it.

Overall, really the levers that are important for the clearing firm are around your balances and around cash balances and mutual fund balances and balances in your advisory programs. And they like and want to see firms that have decent amount of balances in those areas, and they can work with you on that front, but that’s something that we can help guide that process with the clearing firms. Also, another area we find a lot of nickel and dimming what we say in, in, in older contracts where there’s a lot of a la carte fees in there where you get charged for items frankly, that maybe have just been left in there and over time haven’t been noticed by either front until you take a closer look at it. A lot of those noises can be also eliminated through this exercise and simplifying that agreement.

Because also over time, you could have amendments that have been added and as amendments are added to the existing agreement, it further complicates, where do I stand overall and just take a full look at what the pricing agreement looks like in totality. Again, it’s an exercise that we can help out and we’ve got a lot of experience there. So, if nothing else, this exercise with the clearing firm can help you really understand where you stand with them and how important your business is to them. And as Dave mentioned because it touches every area of the firm, it’s something that should be periodically checked no matter when the expiration date is to make sure your business is in alignment with your clearing firm and, frankly, that you have the right partner.  Because at the end of the day, it’s not the worst thing in the world to go out to the market and take a look and kick the tires with other providers to see what they have to offer and to get up to speed because everybody is a little bit different.

We’ve got a lot of contacts; we know all the major clearing firms that are out there. That landscape has changed dramatically over the years from 10 years ago where it was probably a dozen or so providers, it’s probably half of that now. And each one of those providers brings different things to the plate, and you’ve got the big and the small firms that everybody knows about. But at the end of the day, most of these firms are also providing RIA custody services as well as clearing services. And so, they’re being stretched in different ways. You can kind of see where a little bit of the focus is on that front. But in addition to that, everybody has different technological components that they bring to the table. If that’s an important item for you, that’s certainly an area that you should be looking at and what other firms have to offer on the clearing relationship management side as well. Some firms do it a little better than other firms. That’s an area also where you’ll find out just how other firms structure their models on that front.

David Williams: So Peter, you touched on some of the financial types of items and usually that is one of the biggest motivators for an introducing client firm to talk to their clearing firm. Peter also touched on getting out to the marketplace and sometimes that sends shivers up the spines of members of firms as they think about the potential proposition of going through a clearing change. The reality of the matter is, very few firms actually go through a clearing change. So there has to be very compelling reasons and sometimes there are very compelling reasons to make that move. When you combine a potentially better platform that aligns with your firm’s direction and the financial component, sometimes those are very, very good reasons to make a change.

Peter Sheehan: It’s about the money, but it’s also about efficiencies and structure and rightsizing and having the right partner.

David Williams: I would strongly suggest that you surround yourself with expertise, and there’s certainly information out on the internet. It doesn’t compare with some of the expertise that’s available from those that have been doing this virtually for their entire careers and have had the ability to also work with all the clearing firms out there. That landscape has changed pretty dramatically over the years.

But, I guess if I was going to embark on an exercise to, number one, look at my current clearing agreement, see if my pricing is competitive and perhaps, I might be interested in seeing what else is available out in the marketplace, I’d want a partner to help me do that. So, if you are looking at your clearing agreement, if your clearing contract is expiring and you’re looking for expertise and knowledge in those areas, we can help.

We have helped well over 100 firms look at their clearing agreement, find significant savings in some cases, save costs, examine the clearing marketplace to see what other types of firms are available and might align a little bit better with their business direction, and ultimately result in a contract that fits perfectly into their business direction, fits in with the types of advisors that they work with and supports their team better than it was being done before, and basically will free up your team to continue running your business and growing your business while you outsource this expertise, which is Oyster’s expertise.