In recent years, multiple RIA custodians announced that they were moving to “zero-fee trading.” But what does that really mean? Does it mean free? Or no custodial fees?
This news dominated headlines - no commission on single stock and ETF trades submitted online through these custodians almost felt too good to be true...
And for RIAs, the question still lingers – how do RIA custodians really make money?
It’s become clear that “zero-fee” doesn’t necessarily mean free. There could be hidden costs to working with custodians that may not show up on a simple rate sheet.
When starting a relationship with a new provider, it’s important that RIAs take the time to understand how the full relationship is evaluated, priced, and if that pricing makes sense for how they trade for their clients.
Zero fee can be a band-aid solution across all advisors that a custodian works with, but it doesn’t take into account the unique needs of each individual RIA. For example, the zero-fee trading may not have a major benefit to advisors if they primarily trade in mutual funds or alternatives.
The “zero fee” buzzword can be exciting, but it shouldn’t be the driving force behind a major business decision. Advisors are faced with a broad range of custodial costs, with ticket charges being only one line-item to consider.
While big-name custodians may be in a mad dash to add as many assets to their platforms as possible, for some custodial service providers, like TradePMR, scale is not the primary objective. Instead, TradePMR focuses on delivering quality service to top RIA firms.
For TradePMR, this means focusing on points like reducing technology costs while expanding capabilities, to limit the need for advisors to engage with a broad slate of third-party providers. It also means investing in service to deliver white-glove support to advisors that can ultimately save them time as they look to serve their clients and grow their businesses.
Registered Investment Advisors utilizing TradePMR’s Fusion platform can choose one of two pricing structures: ticket-based pricing or asset-based pricing. It comes down to what makes the most sense for each advisory firm – to put it simply, pricing begins with a conversation. Taking the time to understand all aspects of pricing can be critical for advisors, and can help save a lot of headaches down the line.
When looking for a new RIA custodian, it’s important for advisors to understand the full scope a prospective provider’s technology offering before signing on. While many providers offer a similar range of capabilities, the depth and breadth of those offerings can vary widely from one provider to the next.
Advisors looking to get a firm handle on their overall technology spend will need to understand what is offered by a prospective provider at no additional cost, and what capabilities the advisor may need to access through a third-party contract. Locking down this information can help paint a much more complete picture of the cost of working with one provider vs. another.
Consider if one provider offered a broader slate of advanced trading capabilities than an advisor’s current custodian. Switching to this new custodian and accessing these expanded trading capabilities could enable that RIA to end a pricey relationship with a third-party vendor, potentially helping them to consolidate and save on overall technology costs.
This is exactly what the team at TradePMR looks to deliver to RIAs – a consolidated platform that limits the need for advisors to engage with third-party providers. TradePMR’s Technology and Product teams work in lockstep with the firm’s Trading and Advisor Services departments to develop and deliver new tools built to exclusively fit the needs of RIAs.
TradePMR is constantly looking at ways to enhance and expand the offering (and possibly help advisors reduce overall costs). Recently, the firm launched a model sleeve trading capability which is now available to all RIAs using the firm’s Fusion technology at no additional cost.
Taking the time to find a RIA custodian that not only offers a broad range of tools, but is invested in developing new capabilities for RIAs, can make a huge difference for advisors looking to grow their businesses. Not all vendors are created equal. Signing on with a vendor that is 100% focused on serving RIAs with advanced and expansive technology can be a key to making sure advisors get what they pay for from their provider.
Conversations about pricing should go beyond assets and accounts. Having a pricing structure in place with a custodian that fits the unique needs of the RIA can be critical to an advisory firm’s long-term growth. Pricing conversations should include asset mix, the types of clients the firm works with, and their individual growth goals.
TradePMR believes that the role of the RIA custodian is to facilitate RIA growth – that focus is at the front-and-center of every decision the provider makes. Far too often it seems that RIAs are paying a prohibitive amount for their technology vendors, drawn in by flashy promises of “zero-fee” trading that may not paint a full pricing picture. Two RIAs leveraging the same technologies could be paying vastly different amounts, all dependent on how those firms operate.
In order to deliver a personalized pricing proposal, TradePMR looks to intimately understand each advisor’s business and what they are trying to achieve. If the provider feels that it could help that RIA reach those goals, then it’s time to look at pricing.
This pricing proposal takes the advisor’s full business into account and is designed to make sense for the RIA as well as TradePMR. Pricing that doesn’t disproportionately impact one firm more than another, but rather pricing that’s built to fit how each RIA runs their business, and trades for their clients.
If so, we should talk. We can dive into your unique business, your individual challenges and opportunities, and if TradePMR could be the right fit to support your growth.