Should Your RIA Add a Custodian?

What You Need to Know

According to a Cerulli report, out of four RIAs are exploring adding a new custodian in the next year.
Custodian diversification provides a broader set of capabilities and resources for your firm and your clients.
There are certain characteristics to look out for when choosing a custodian.

Some RIAs work with a single custodian, while others maintain relationships with two or more. Almost half of RIAs, 44%, currently work with a single custodian, according to a 2022 Cerulli report.

Not surprisingly, smaller RIAs tend to work with a single custodian. Fifty-five percent of single-custodian RIAs have less than $250 million in assets under management, while 65% of dual-custodian RIAs have $250 million in AUM or more. Among RIAs with three or more custodians, 71% have at least $500 million in AUM. Larger RIAs are more likely than smaller RIAs to be multi-custodial because of the operational complexity it takes to manage multiple custodial systems, the Cerulli report noted.

The Benefits of Custodian Diversification

Regardless of your firm’s size, you could benefit by diversifying your business. One out of four RIAs are exploring adding a new custodian in the next year, according to Cerulli.

Multi-custodial advisors stated that working with more than one custodian allows them to avoid relying completely on one service provider. If they keep custody assets with only one firm and that firm undergoes a major strategic change — due to an acquisition, for example — the advisor will have no immediate alternatives. Using more than one custodian mitigates this risk and hedges the exposure.