RIA custodians face threat of losing clients to tech vendors, finds Aite report

The report suggests custodians are no long the central hub of technology for RIAs, with tech vendors now providing direct competition over data and analytics.

By Joe Parsons

Custodians for registered investment advisors (RIA) are facing increased competition from technology vendors that can provide enhanced data services, a new report from Aite Group has found.

The RIA custody space has been dominated by BNY Mellon’s Pershing, RBC, Fidelity and TD Ameritrade, however vendors and FinTech firms are becoming the central hub of technology for RIAs and providing direct competition.

Tech vendors are also competing with custodians for oversight of front-end applications and data integration, the report added.

Custodians will have to find new ways to enhance their value proposition, the report says, by leveraging data to create predictive models and deliver better business outcome for RIAs and investors.

“Custodians need to reinvent themselves, as they are no longer at the centre of the advisor relationship,” said Greg O’Gara, senior analyst at Aite Group and author of the report. “The value proposition of transaction processing is nearly non-existent, and where custodians fail to provide advisor solutions, vendors are filling the void.”

The report also suggests custodial data and analytics are no longer becoming a vital component to advisor engagement, and “often fall short of expectations”. Data deployment and analytics are being provided by a combination and increasingly by the RIA’s themselves, further disintermediating the custodians from their RIA clients.

“Robust collection and deployment of RIA and client data into new analytic tools will become table stakes as custodians try to remain relevant to advisors and go beyond their core custodial services,” the report stated.

Some custodians have made efforts to reinvent themselves around data and analytics. For example, BNY Mellon’s Pershing is working on an artificial intelligence engine that supports natural language processing (NLP) and recommends best next actions for an advisor to take.

Meanwhile TD Ameritrade Institutional acquired big data firm FA Insight to provide an interactive tool for RIA benchmarking versus their industry peers, and RBC is pursuing a strategy that keeps its platform at the centre of the RIA tech stack, whereby it can integrate its RBC Black platform with multiple third-party vendors.

The report resonates a similar survey conducted by WBR and SimCorp, that showed the majority of buy-side firms seeking to consolidate their front and back-office operations would choose a solution offered as a platform or a service by tech vendors, as opposed to custodians.