How RIA firms can choose a custodian

Financial advisors weighing which custodian to work with can be overwhelmed by options. But there is a simple method. 

Every RIA custodian may have similar offerings: trading capabilities, performance reporting, and CRM functionality. Only when you dive in deep can you identify which provider has the special sauce to meet your current and future needs.

This deep dive is where the RIA custodian RFP comes into play.

Utilizing an RFP to select your next RIA custodian could be a unique opportunity to fulfill your fiduciary duty and perform the necessary due diligence. The benefits of a custom RFP extend beyond compliance requirements, charts, and graphs to find the right match for your RIA the first time. 

What to Include in Your RFP

How do you write an effective RFP? And what separates a good RFP from a bad one? While every firm's RFP should be unique to address that firm's needs and goals, there are a few key sections every advisor should consider including:

• About the Custodian – core value proposition, average size and structure of RIAs, custodian ownership, available accounts and whether the provider has a retail channel.
• Service and Transitioning – approach to RIA transitions (including support and technology), service team experience and structure, service tiers (if any), and process for RIAs to secure support.
• Trading – RIA trading technology, trading support, depth of trading functionality, upcoming expansions to trading offerings.
• Technology – current state of the technology platform, available third-party integrations, technology roadmap, and overall approach to technology development.
• Cybersecurity – safeguards in place, security processes and procedures, support for RIAs, data protection, and data sharing.
• Pricing and Fees – approach to pricing structure, fees, pricing adjustment over the relationship (if any), pricing when compared to competing providers.
• References – RIAs that currently work with providers who can offer insights into the technology, operations, and approach to service.

Diving into each of these sections and identifying all the key points necessary to your business can be critical. 

4 Tips to keep in mind

From my own experience and conversations with other advisors, it can be challenging for RIAs to determine what to include in their RFP: what's important, what can be assumed, and how much to dive in.

When building and distributing an RIA custodian RFP to prospective providers, advisors should keep these four points in mind:

1. Be specific – don't leave any room for interpretation. Ask direct and clear questions to be confident that the answers address your concerns and touch on the points you want to know.
2. Cover all the bases – don't just consider what features impact advisors; dive into all the qualities that impact the whole RIA team (operations, client service, portfolio management, etc.).
3. Ask for the moon – the worst you'll hear is "no." Check in on the features and services you'd like to have access to in an ideal world, you may be surprised by what you hear (and may even influence the provider's technology roadmap).
4. Leverage referrals – while it may seem like these references would be simple cheerleaders, there are ways to cut through the noise and get accurate answers. 
   
   Every custodial service provider is different and will approach these RFPs differently. By following these four steps, you can help to standardize responses and ensure you know how each provider would work with your firm.

Borrow From Your Peers

As the CEO of a custodial services provider, I have received (and participated) in several RFPs from advisors. Perhaps the thought of figuring out how to conduct an RFP is overwhelming.  That being said, it can take time to figure out where to begin. That's why my firm has developed an RIA Custodian RFP Template to help get you started. 

I hope every firm does its due diligence before making any moves. But the reality is, many will be challenged. Any RFP template is not intended to be a one-size-fits-all. The questions I provided for review were compiled from a variety of sources, including other RIA firms' RFPs. Include what is useful to your firm and disregard anything that will not help drive the decision-making process. 

Your firm is unique, and your RFP should be as well. But above all, your RFP should answer all possible questions about your next custodial services provider.

This article was originally published on TradePMR's blog on October 11, 2022. Used with permission.