For RIAs, Automation and Multi-Custody Relationships Spurs Expansion
From independent broker-dealers with their own RIA platform, to stand-alone hybrid RIAs and fee-only RIA businesses, the wealth management industry is increasingly recognizing the strategic advantages of adopting both automation and a multi-custody model.
Independent financial advisors believe that the combination of technology and having multiple custodial relationships will be the main factors that lead to the expansion of their business. Nevertheless, advisors perceive expanding their business as the primary obstacle in 2024, according to a survey by Interactive Brokers.
Automation is crucial in the realm of technology. The 2024 Interactive Brokers Advisor Insights Survey revealed that 79% of respondents concur that automation provides them with additional time to develop client relationships, while 60% of respondents stated that automated processes facilitate the rapid acclimation of new team members. Moreover, 58% of respondents reported that administrative costs are reduced by automation in account management.
The survey also revealed that advisors are requesting more streamlined methods for client management, with 65% of them expressing a desire for the new account opening/client onboarding process to be more automated.
“When an RIA commits to automating operations and client management, it’s a game-changer,” Steve Sanders, EVP of Marketing & Product Development, Interactive Brokers, told Connect Money. “Advisors and their teams don’t need to be tech-savvy to start – we’ll bring the technology and training – but firm leadership does need to commit to conducting business in a way that might be different from ‘how we’ve always done things.’”
Multi-Custody Model
According to the survey findings, advisors use more than one custodian because it makes “good business sense,” with client preferences being the most common reason, followed by service availability and diverse investment product offerings. Most advisors asked (64%) indicate they utilize a minimum of two custodians, while 34% of them utilize three or more. Additionally, 60% of advisors who currently use only one custodian expressed their willingness to consider employing several custodians in the future.
“First and foremost – firms should choose a custodian with a turnkey automated solution so they’re not dealing with multiple technology vendors at the same time. This is especially true for firms that don’t have large internal IT teams – which, frankly, are most RIAs,” said Sanders.
“The upside to using more than one custodian is that RIAs can fill in product and automation gaps, as well as potentially mitigate risk in the event a provider has an issue,” he added. “And while there’s safety in numbers, it’s a balancing act. There’s no ‘right’ number of custodians – every firm’s circumstances and clients are different – but having to juggle too many will ultimately increase a firm’s operational load.”
Lastly, advisors noted that the challenge of growing their business is top of mind. Many advisors are implementing “more aggressive” marketing campaigns this year, asking for more client referrals and doing more industry networking to expand their business. The survey showed that 39% of advisors are recruiting and training young talent to take over the business as part of their long-term succession plan.
“As with most businesses, revenue growth is key to the future success of any RIA firms. Automation can help bring about operational efficiencies, cost savings and increased productivity, but firms must also increase revenues to grow over the long term,” added Sander.
The global email survey, performed in April 2024, was completed by 100 fee-based, independent advisors with an average of 24 years of experience and $72 million in assets under management, 20% of whom manage an average of $278 million.
