How RIAs can beat the clock when leaving Fidelity custody
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- Key Insight: Fidelity’s impending removal of firms with less than $100 million from its platform will require many firms to begin a cumbersome process of finding a new custodian.
- What’s at Stake: The process can happen in just a matter of weeks, but any number of hiccups or stumbling blocks could lengthen the process.
- Expert Quote: “But the problem is you still have your proverbial day job, right? So you have to still carry the torch of everything you need to be on a day-to-day basis, and now you have this very large project on your hands, as well.” — Brad Wales, Transition to RIA founder
The bad news for advisors required to change custodians because of Fidelity’s new $100 million asset minimum is that they’re now looking at likely months of repapering and other tasks necessary for moving client accounts.
The good news is that the June 30 deadline Fidelity has set for firms that have to move because they have less than $100 million entrusted to it provides ample time. Still, because of the unexpected hiccups that can arise in transitions from one custodian to another, industry experts are encouraging advisors who need to switch to not dally.
Consultants and RIA executives say moves to new custodians can generally be broken down into three phases:
- Due diligence: With about a dozen firms offering custody services to RIAs, advisors could easily spend months vetting different options. But asset minimums at other custodians will most likely limit the choices for firms now looking to leave Fidelity.
- Tech integration: Many firms have account-management systems built for one particular custodian and may need to make significant changes before it will work with another. Others may look at this as an opportunity to bring in a completely new system.
- Repapering and moving accounts: Electronic documents and services like Docusign have removed most of the need to send actual paper to clients. Even so, advisors still have to take time to explain why the custodial change is happening. And unforeseen circumstances — like clients being away on vacation — can stretch this process out for months.
You can’t quit your day job
Brad Wales, the founder of the consulting firm Transition to RIA, said Fidelity has certainly given advisors enough time to complete all three steps in the eight or so months leading up to June 30 next year. In an ideal world, the first two each could be checked off in a matter of weeks and the last over the course of several months as advisors track down straggler clients.
“But the problem is you still have your proverbial day job, right?” Wales said. “So you have to still carry the torch of everything you need to be on a day-to-day basis, and now you have this very large project on your hands, as well.”
Fidelity has said the number of firms likely to be affected by
Wales said firms with multiple custodial relationships often have software from third-party providers like Advyzon, Orion or Black Diamond Wealth Solutions that’s built to work with a wide array of custodians.
“So if they’re using, just to pick one, Advyzon and underneath that they already have Fidelity or Schwab, they’re not having to change anything with Advyzon,” Wales said. “They’re just having to change what the account is actually held.”
Wales said some firms with assets custodied Fidelity will simply be able to transfer enough in to meet the $100 million minimum. The real difficulty will be advisors who use Fidelity as their sole custodian and are now about to lose that relationship.
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Of the roughly dozen custodians, which one to pick?
For them, the first step is to look at the various custodial-service providers in the market and try to discern which is best the fit for their clients. With roughly a dozen custodians to choose from, this vetting process could take months.
But Wales said many of Fidelity’s rivals also have minimum-asset requirements that sub-$100 million advisors will be unlikely to meet. For most, the top two choices will be Charles Schwab
With their options narrowed, Wales said, most firms should be able to size up potential new custodial partners and make a final choice within a few weeks.
“This is not a ‘Gosh, I’ve got to go research 12 firms, and that’s going to take a lot of work,” Wales said. “Realistically, if they were to reach out to me, I would narrow the list down quite quickly for them.”
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Automation makes moving assets easy, researching client accounts less so
Many custodians have built special systems designed to ease transfers of client accounts. TradePMR, which was bought by Robinhood Markets last year, offers an account transfer tool that breaks the process down into four steps. A case study on the firm’s website explains how one firm was able to
Betterment, likewise, has custom-built systems designed to make it easy to move assets over from other custodians. Betterment is making a special appeal to advisors leaving Fidelity by saying it will waive until the end of 2028 the platform fees it normally charges its custodial clients.
Devon Klumb, the director of sales for Betterment Advisor Solutions, said he and his team have already talked to several advisors who custody with Fidelity about a possible move over. For advisors who come to Bettermerment with all the information needed on their client accounts, a transfer can be arranged in a matter of days.
Klumb said Betterment has compiled into email all the regulatory documents that clients must sign to authorize their advisors to move assets.
“It’s your Form ADV, your 2A, your 2B, your client agreement, your privacy policy, your Form CRS — all of that is packaged up in this invite process,” he said. “So for the client, it’s an email. They open it, they go through it, and they approve everything.
But before getting to that step, advisors must go through the sometimes lengthy process of learning if their clients’ accounts have particular investments or asset-distribution plans that may be difficult to transfer. Robert Russo, CEO of the hybrid RIA Visionary Square, said stocks, bonds and other commonly used investments can usually be moved in a straightforward way.
Complexity comes in if clients have set up contractual arrangements for assets moved automatically in or out of banking accounts or for assets held in trusts. Clients may also have money in small exchange traded funds (ETFs) or other investments that aren’t supported by other custodians.
“It’s not really just repapering,” Russo said. “Getting your account from, let’s say, Fidelity to another custodian, that’s actually the easy part. I think the hard part is what other ancillary documents are on file at the custodian that might be a little bit more complex.”
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And then there’s the dreaded repapering
Russo and others at Visionary Square, formerly the Independent Advisory Alliance, have become familiar with the intricacies of custodial transitions in part through helping advisors join their firm from elsewhere. Visionary Square provides support services to 140 firms and custodies assets at Schwab, Fidelity and LPL Financial.
Once an advisor has decided which custodian to use, the act of transferring assets can take as long as three months to complete, Russo said. That means most RIAs shouldn’t have too much trouble complying with Fidelity’s June 30 deadline.
“But I would say they need to focus on making that decision [on a custodian] and probably figuring this out by the end of the year, so that they’re not in a hurry for the parts where clients will feel it,” Russo said.
With a new custodian selected and account information gathered, advisors’ last task is the much-dreaded repapering. This generally refers to the myriad documents clients must sign to permit their assets to be moved from one firm to another.
As Wales noted, electronic documents and automation have made this task less onerous in recent decades. But they can’t do everything.
Advisors still have to schedule meetings with clients to explain why the move to a new custodian is needed. They then have to send out the required documents and wait for the return of signed copies.
Some clients will give their approvals almost immediately. Others will not see the documents because they were consigned to their email spam folders or will simply overlook requests in their inboxes. Sometimes advisors have to wait a month for clients to come back from vacation.
“Because of the advancement with the Docusigns and all of that, the bulk of that work can be done in the first 30 days,” Wales said. “But there are different reasons that it may spread out over two, three months before you’ve got the majority of your clients over. So again, you have to factor that in.”
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The good side of having to look at new custodians
Russo said he understands that some RIAs affected by Fidelity’s new minimum are feeling cast out. He said he sympathizes but thinks advisors should also take this as an opportunity to review the many options now available to users of custodial services.
“Besides, I think typically if you’re in a scenario where you’re no longer wanted to be retained by a firm, you probably were not getting that firm’s best in terms of service anyway,” he said.
Russo said he thinks Fidelity’s June 30 deadline provides ample time — provided advisors get moving now.
“If Fidelity is going to shut you down in June, you’ve got to do all this due diligence we talked about,” he said. “And if it were me, I would factor two to three months to do the actual movement of the accounts. And again, that’s a challenge because all these advisors got to carry the day job while also doing this additional work.”
