7 Emerging Challenges for Advisors, and How Custodians Want to Help

The war for market share among advisor custodians is one of the hottest conflicts in wealth management today, with trillions of dollars at stake for all parties involved — the custodians, the advisors who rely on them to safeguard client assets, and their collective clients.

But at a recent industry event, several of the biggest names in RIA custody came together to highlight the biggest issues to watch. Leaders from custody giants Charles Schwab, Fidelity and Pershing, as well as relative newcomers Goldman Sachs and Altruist, appeared on stage at the National Association of Personal Financial Advisors, or NAPFA, Large Firm Forum, which took place last week near Phoenix.

“Their growth and our growth are tied together, and it felt in listening that we really are partners, despite our different set of needs,” advisor Cheryl Holland said of the custodians in an interview after the panel discussion.

Cheryl Holland (right), a CFP and founder of Abacus Planning Group, moderated the panel. Speakers included Brad Losson (left), managing director at Charles Schwab; Richard Lofgren, managing director at Goldman Sachs; Jason Wenk, founder and CEO of Altruist; Angie Popek, SVP and regional managing director at Fidelity; and Ben Harrison, managing director at BNY Mellon |Pershing. Credit: Victoria Zhuang

Holland, a CFP and founder of Abacus Planning Group, moderated the panel. Speakers included Brad Losson, managing director at Schwab; Richard Lofgren, managing director at Goldman; Jason Wenk, founder and CEO of Altruist; Angie Popek, SVP and regional managing director at Fidelity; and Ben Harrison, managing director at BNY Mellon |Pershing.

Schwab leads the pack in RIA custody, according to an industrywide survey of 2,917 advisors published earlier this month by T3 and Inside Information. The study found that Schwab occupied around 38% of the RIA market, followed by Fidelity, Pershing, SEI and Altruist, and then several other firms including Goldman, respectively.

Advisors who custody with the Big Three, especially at Schwab and Pershing, were most likely to say they planned to either move custodians or add another one. (Schwab, Fidelity, SEI and Altruist were all among the sponsors of this year’s NAPFA conference.)

The event was targeted for fee-only fiduciary advisors, whose firms generally had at least $1 billion in assets under management, or were approaching that in five years, or had at least 20 employees.

Here are seven emerging challenges facing advisors — and how custodians want to help.

Contents

1. There’s a massive shortage of next-gen advisor leadership.

Lofgren said what concerned him the most was the problem of bringing in younger talent to help with succession as the industry’s aging workforce approaches retirement.

If advisors can’t find enough qualified talent, more may be pushed to sell their firms, Lofgren said. “We look across the industry, the average age of advisors is 49 years old. What are we doing to bring in the next generation?” he said.

A 2022 Schwab study found RIAs would need to hire over 70,000 employees, assuming no departures, over the following five years to maintain their pace of growth, Losson said.

Schwab is investing in young talent sourcing and matching to aid RIAs in long-term growth, he said. “We’re active in college and universities, endowments and grants, and trying to help create that talent pipeline for all of you … I know my colleagues here are active as well,” he said of the other panelists.

2. Training new talent is an issue, and custodians want to help.

Fidelity is offering practice management, benchmarking studies, tech, “thought leadership” and consulting resources, Popek said, to help advisors with talent development and capacity building once they make that hire.

It also launched an “RIA staffing tool,” Popek said. The tool helps advisors “so that you can measure your staffing levels and productivity versus your peers and make informed hiring decisions.”

“Think about diversity in your hiring approach so that your associates are representative of the clients that you’re serving now and in the future,” Popek said.

She added that more firms could benefit from sourcing talent broadly — drawing from career changers, veterans and boomerang workers who are returning to the workforce after caregiving or another career break.

“Some firms are even getting creative and thinking about part-time solutions as they look to attract some of these associates,” she said.

3. Advisors are stalling on organic growth.

Frequent headlines about inorganic growth in the industry mask an unsettling reality of sluggish organic growth for many practices, the panelists said.

“The vast majority of firms are not growing significantly. Organically, it’s low single-digit growth,” Harrison said.

4. Advisors need to outsource more.

Advisors are often distracted from spending time productively with clients, Harrison said. To outsource non-client-facing work, Pershing is investing in “human capital” staffing to support advisors, as well as productivity tools, he said. It generally focuses on firms with $1 billion or more of AUM.

Goldman Sachs also positions itself as outsourcing support, targeting RIAs moving upmarket. Its custody arm sells bespoke solutions to advisors whose clients have “significant” net worth and want to invest in more diverse asset classes like alternatives, Lofgren said.