Big-box stores have coopted the term value – as a result, it’s easy for us to associate a “good value” with something that’s cheap.
However, that’s not necessarily the case. Value is more about bang for your buck. It’s about getting the biggest benefit at a cost that makes sense.
So, it begs the question, what’s more important to RIAs? Cost or Value?
As RIAs enter the new year, it’s a great time for them to evaluate vendor relationships and help ensure they’re getting the best value and cost from their providers. For RIAs evaluating their RIA custodian relationships, determining value comes down to identifying benefits and dissecting pricing agreements.
At the surface, it may seem that most RIA custodians have similar offerings. However, once advisors dive in beyond the surface, they may find that one provider is a better fit for their unique business than the others.
When evaluating a provider’s offering, advisors may want to zone in on points like service structure, approach to technology development, data policies, integrations, available accounts, etc.
Whether an RIA is evaluating prospective RIA custodians or reviewing the offering of their current provider, these are points that will impact advisors and their clients. Every RIA is different, and it’s important for advisors to ensure their provider checks the right boxes for their individual firm.
How can advisors effectively evaluate across these core points? They should consider developing an RIA custodian request for proposal (RFP).
Developing an RIA custodian RFP takes a full team effort. RIA teams should sit down and identify what they’re receiving from their current provider, what they’re missing, and what new capabilities/offerings/technologies could benefit their team from a potential new vendor.
An RFP is an opportunity to dive into the nitty gritty with a provider. Ask all the questions that they can’t answer with a simple Google search. Points like:
The RFP should be expansive and cover all the points relevant to an RIA. Some key sections to consider implementing into an RFP include:
On top of all these sections is one other point advisors should be sure to dive into in their RFP: Pricing and Fees.
Value is the intersection of benefits and pricing. If an RIA custodian’s offering checks all the right boxes for an RIA, there is only one more question: is the price right? The RFP should answer this question.
RIA custodians price their offering in a few key ways:
These are the baseline pricing structures for each RIA however they do not account for all the ways RIAs and their clients pay custodians. To learn more about RIA custodian pricing, get TradePMR’s RIA Custodian Pricing Guide.
What’s important to understand is that there is no one right pricing arrangement – each RIA is different and could benefit from a different pricing structure.
RIAs should explore available options and determine which pricing structure makes the most sense for their team and their clients.
Finding the right pricing can be difficult, especially if an RIA custodian takes on a rigid approach to pricing.
Take, for example, a big-name custodian that boasts zero-fee trading. Zero fee trading isn’t necessarily the right fit for every RIA. If zero-fee trading only impacts ETF and single stock trades, an RIA that primarily trades mutual funds may end up paying disproportionately higher fees to trade for their clients. It all comes down to determining what pricing arrangement makes the most sense for the RIA, and their provider.
If a prospective provider responds to an RIA’s RFP with a simple take-it-or-leave-it fee rate sheet, that could spell trouble. How can an RIA get the best value from their custodian if the pricing model doesn’t fit their unique business?
At TradePMR, pricing begins with a conversation. The provider takes the time to understand each RIA’s unique needs, goals, and opportunities, and curates a pricing model to facilitate their success, not hinder it.
Beyond this personalized approach, TradePMR’s pricing proposals are not an end-all-be-all. The firm is open to negotiations and wants to find a model that makes sense for both parties.
As RIAs start off 2023, it’s important that they take the time to evaluate their pricing arrangement and ensure it fits the needs of their unique business.
If so, TradePMR would love to be a part of your search.
We can dive into your unique business and what you’re looking to accomplish in the coming years. Let’s see if TradePMR could bring the right value to your business to take your team to the next level.