[00:00:01] Speaker A: Hello and welcome everyone. I'm Taylor Pankratz, and this is behind the breakaway. Together with my co host, Jason Barber, this show takes you behind the scenes of leaving your captive broker dealer firm and explores the world of RIA independence.
[00:00:20] Speaker B: All opinions expressed on the podcast by the hosts and guests are solely their own opinions and do not reflect the opinion of uptick partners. This podcast is for educational purposes only and is not legal advice and should not be relied upon as a basis for any decisions.
[00:00:41] Speaker A: We are today going to talk about things to consider, things to think about. When you are picking your custodian for.
[00:00:50] Speaker C: Your breakaway, probably the most important decision you're going to make, really. I mean, one of besides. Besides partnering with us, right?
[00:00:58] Speaker A: That's right.
[00:00:59] Speaker C: Besides partnering with us. Once you know that you've got your Seal team six lined up, then the next conversation is where's the money actually going to be held when I do this, right?
[00:01:09] Speaker A: Absolutely.
Talk a little bit about the things to think about, kind of the big things to think about, and then maybe we can go into the details of some of the more minutiae things to consider with the custodian. But what are the big kind of rough marks for things you should think about when you're deciding between should I go with Charles Schwab or Fidelity or Raymond James or BNY Mellon Pershing?
[00:01:39] Speaker C: I think that ultimately what we realized and we looked know you and spent, we did a deep dive with Pershing. We did a deep dive, but really Pershing came in at the very end. We really thought that fidelity and Schwab were going to be the two that kind of, we let battle it out. But what we realized after really getting into the weeds is that for us personally, now we're going to get into specifics of why this was. But for us personally, the most important thing was the onboarding process and the actual minutiae details of how do I open up an account? How does the client sign for it? Does the client have to create an online account? Do they have to have an email address? Do they have to have a cell phone number? What is the actual minutiae details of how do I actually go about from the moment that the client says yes to the moment that there's an ACAP printing on the other person's printer, what exactly has to happen? And trying to figure out what is the most streamlined way to do that, where there's the least amount of. Because we talk about momentum and the importance of that momentum in this whole process. Because what you've got to remember for us.
So maybe we talk a little bit about everybody's situation is going to be different if you're like us, you're in a town of 30,000, and you've got six other financial advisors that you thought were your friends that are now calling all your clients, and they're basically telling your clients that you were ripping them off. You're telling your clients that you died. They're telling your clients that you're retiring, that they don't know what happened to you.
They just up and vanished.
And they're seeing them at church, and they're taking them out to lunch. They're doing whatever they can to try to retain that business. And so for us and for many people that would kind of think of themselves as being maybe in a similar type position as us, you have to recognize that that transition and the fact that it's non protocol is different than maybe somebody who's transitioning in Dallas, Texas, who you say, yeah, the other advisors that are going to take over my clients, odds are 95% they don't know them. They don't go to church with them, they don't see them. There's zero relationship there. So it's still important, obviously, but it's a different dynamic in terms of the momentum. Okay, so you think about that. How smooth of a process is that? From the second that that client says, I want you to continue to take care of my business to the moment that the acap prints, if you've got somebody who they say yes on a Saturday, and then they see their new quote unquote advisor at church the next day, you want to streamline that and speed that process up from start to finish, because otherwise there's a higher possibility of there being a doubt in that person's mind that maybe this isn't the right decision for me.
[00:05:04] Speaker A: Right, exactly.
If the babysitting advisor, the new advisor that gets handed these accounts, if they know that person, or they knew that that person was your client and now you've left, and so they know that that account is kind of up in the air, or they get handed a list of clients, and they know some of these people from just being around town, you've got to make the transition for your client. Something where it doesn't take weeks to make this money move. It needs to take days.
[00:05:43] Speaker C: Yeah.
[00:05:44] Speaker A: And because every day that goes by, that's kind of that. That person hasn't moved their money, or it's, oh, they're waiting to get back the trust document to be able to open up a trust account and all these things, that advisor is over there dripping on them, and it starts to get to the point where, well, I'll move in a couple of months, because I'm really busy right now. And then all of a sudden, I think it's fair to say that either way, whichever, if you're in what we would call kind of a contested breakaway environment, or more in a large city where your clients, you can bet that the people that are going to be given a list of their names aren't going to run into them at the grocery store or know them from church, then either way, whatever breakaway situation you're in, you would probably take half your clients if it was just.
[00:06:37] Speaker C: No matter what.
[00:06:38] Speaker A: No matter what. It just is.
Whatever custodian you picked and ODs are.
[00:06:45] Speaker C: You'Re probably going to get more than half no matter what, really. I mean, assuming you have good relationships with your people. Right. But, yeah, I'm just saying, we're talking about going from that 65, 75% success that they kind of consider that sort of that benchmark of like, hey, if you're just doing a decent job, you ought to do this. How do you take it from there to 90? Okay, right.
[00:07:06] Speaker A: Exactly. How do you get the people that marginal business that becomes quite a bit of. Yeah, how do you get them? And the reality is you have to make it easy for these people.
[00:07:19] Speaker C: Yeah. You want it to basically be like they say yes, and you're like, let me just. I'm going to streamline it. So you talked a little bit a second ago, Taylor, about trust documents. Okay? So that's a know, there's a lot of things when you're choosing the custodian.
What exactly is that process? For example, one of the biggest reasons, and look, nothing against. We're not speaking ill of any custodian today. Okay.
You're going to find for anybody listening to this podcast that Taylor and I, we keep it a hundred, right? I mean, we are going to say it like it is, and so we'll tell you the things we like and the things that we don't like about every custodian.
For example, when we were at Charles Schwab and Fidelity, one of the biggest problems that ultimately was kind of a deal breaker, I guess you could say for us, was that the client, if they wanted to docusign, if they were going to electronically sign, which we knew was important, and that we got clients in 30 states that they would have to create an account with that custodian first.
And in the case, I believe, of fidelity, if I remember correctly, even if you wanted to do on paper, it either was at that moment or in the very near future that a client would be obligated to have an email address to do business with them. Well, sure, most of our clients have email addresses, but there are certainly some that don't.
And so I don't want to have to have that conversation with them about, I'm sorry, we can't hold your money. That's crazy to me. So that was kind of a deal breaker for both of those. And we vividly remember having that conversation on the way home from pershing the docusign process. But what about trust documents? What about voided checks for Ach? What about all these other things that.
[00:09:12] Speaker A: We can talk know you. I think the idea is no custodian is perfect. Like we've said many times in the past, they all have their pros and cons. And so when you're making that decision, you just need of where you're initially going to move your clients money to, because the reality is you're not going to want to move your money to multiple custodians on that first day, one break. Why is that? Well, because your staff is going to need to learn how to open up accounts or do paperwork or do any of the processing stuff at multiple custodians. That sounds like a nightmare because they're used to doing it one way at one company for many years, and then overnight, you're going to tell them, okay, this is the new custodian. In fact, these are the new two or three custodians, depending on where the client wants to pick, to choose to put their money. It's like, no, you're not going to do that. For efficiency's sake and just for the sake of your staff.
[00:10:16] Speaker C: Exactly.
[00:10:17] Speaker A: You're not going to do that. So you're going to pick one, and then over time, you're going to expand and maybe add on multiple custodians. But there should just be one that you pick from day one to simplify things and to simplify in your brain the pitch to clients as they're asking, well, where would my money be? And you're going, well, you don't want.
[00:10:42] Speaker C: To give them options.
[00:10:42] Speaker A: You're not going to be like, well, are you tech savvy?
You're over here. Do you have a trust? You're over here. No, that's going to make them feel like you haven't figured this out yet.
[00:10:53] Speaker C: Exactly.
[00:10:54] Speaker A: So you just pick one. And we picked Pershing for the one reason is we knew this was, we're in a small town. We knew this would be a contested breakaway, and we wanted the chick fil a drive through transition experience.
[00:11:12] Speaker C: Exactly.
[00:11:13] Speaker A: For our chick fil a breakaway TM.
So what does that mean? Right. So, Jason, why don't you explain kind of what our vision was for breaking away? And we pitched this to every custodian that we went to, and really, only one Pershing said that they could make that a reality.
[00:11:35] Speaker C: Yeah. And in all fairness, when we say we went to the custodians, fidelity, Schwab, Pershing, those are the three that we looked at.
[00:11:43] Speaker A: Exactly. So we didn't look at all of them. And there's definitely some that are much more technology forward. Altruist is one of them. But altruist, when we broke away, was very early in the game, and they couldn't handle a book of our size. Now, maybe they're getting closer, but, yeah.
[00:12:06] Speaker C: So the vision ultimately was when I call my client and they say, yes, they say, I want to come, what I really desired was to have the ability, and it didn't exactly play out this way, but we tried to make it as close, because you just don't really know what it's going to be like until you're living that. But the idea was that, hey, the client says yes, and then I want to be able to be in a position, and we did do this a few times, but I want to be in a position where I can have their paperwork right here on my drive. I could get in my truck, drive to their house. This person may have never had a cell phone number or an email address in their life. Okay.
As long as I can get Internet service from at t. At their house, I could drive to their house, or they could drive to my office. They could walk in, and we could pull up on my phone. Here's my docusign app. You see that little yellow button right there that says, sign here, click touch your finger there and sign it. And you may have to touch it 15 times to sign the 15 different places that you need to sign. But there is no two factor authentication. There is no any of that. It's just sign the document as if.
[00:13:22] Speaker A: They signed it in person with ink.
[00:13:24] Speaker C: It's as if they signed it in person with ink, which there would be nothing wrong with that, right? I mean, if they did that, that's exactly how it would be. Okay. And so most of the custodians that we talked to, they would say, well, you can't do that. That's impossible.
How do we know that it actually was them?
And I guess my response at the time was like, how do you know it's them? When you see an ink signature. Right, right. I mean, you're trusting that this is their signature because I'm not doing something that's fraudulent. Like, how is it any different?
Know, they sign their name with their finger or what's the difference? And so ultimately, Pershing was the only one of the three that we talked to that said, we will let you do that. And so that really streamlined things a lot, because when you're moving a book of our size, 500 plus million dollars, you are in a position where it is crazy. There's just a ton of activity going on. And so you need to get to that point where you don't want to have clients that say, you say, oh, yeah, let me send you an email, and you can just follow the instructions on the email. And then something goes wrong. Something's not working.
Their Internet is not working, whatever it may be. Or I didn't have these problems at wherever you're breaking away from. And maybe that guy's, he's pretty nice. And I think I'll just kind of just, we'll hit the pause button or whatever it may be, right? You just have this momentum issue that comes up for us.
It was literally the reason for Pershing winning the business.
And again, also just kind of being in that non protocol situation. Their onboarding tool is very friendly. It just seemed like the folks at Schwab, with all due respect and fidelity for that matter, just couldn't wrap their minds around this concept of, we're going to have to do this one at a time. Right? Like one person, this person says, yes, I want to come. I'm opening up their account one at a time. I don't have a big spreadsheet of all my clients information.
I can't bring that with know, because it just seemed like Schwab in particular. I can vividly remember them being like, well, you're just going to upload this spreadsheet. And so then it was almost like the way they wanted it to go was that it was like, well, you're going to talk to your clients, you're going to gather their information, and then you're going to put it all into a spreadsheet, and you're going to send me the spreadsheet once a week, and then we will go and produce either the paper forms or we will send them out their docusign stuff on a weekly basis. And you go back to that, like, well, that sounds like a terrible idea because it sounds like you're going to take a week. There's a week between them saying yes and something actually happening.
[00:16:31] Speaker A: I mean, I can tell you vividly that we had a client that didn't come with us and they said they wanted to move and they weren't electronically savvy, and so I had to mail them the stuff to sign.
And wouldn't you know that in that time that it took for the mail to get there, they changed their mind because they had been called.
So whatever you can do to make that extremely easy, quick and efficient, you got to think about it as, where do I want my clients money to be five years from now? Well, that's great and all, but what's going to be able to. The transition matters the most amount of money. That's what really matters. And then over time, you slowly just figure out where they need to be. Where do they need to actually be? But you have that conversation, you do that much slower and methodically over the years, whereas the first breakaway, you've got to pick something that is extremely easy for the client to do. Business can't give them any reason.
[00:17:51] Speaker C: To.
[00:17:51] Speaker A: Not be able to come with you. So by any means you guys, like, hey, I'll take the iPad over there and to your house and we'll sign it instead of, I sent you an email, sign it at your convenience.
[00:18:01] Speaker C: Exactly.
And that's why uptick partners is going to be so great for folks. Right? Just more of that SEAL team six approach. We know. We've learned these lessons. We know, especially if you're in a contested market like we were in, we know how to make it happen. And so we've learned those lessons on those few occasions where one got away. Okay, you know what not to do.
You know what not to do. And you say, we've got to find a way to make this work. So there's some other things that I think you have to look at with custodians, too, in terms of, again, for example, one thing. Many, many people are going to be needing money every month. Do I have to get them to provide me a voided check? Okay, that's very inconvenient. Very slows things down. It's a bottleneck issue.
Very inconvenient.
Hey, we've got a living trust. Do I have to get the trust like Charles Schwab? The answer to that is yes, you're going to have to have those trust documents. Pershing. No, not so much. Right.
I will say, probably some of the most challenging accounts to open up are going to be the corporate accounts. If you have LLCs, corporation accounts, et cetera, that's just kind of one of those deals where you're just going to have to set the expectation with the clients because it's very hard to get those accounts opened up without having organization letters, et cetera, tax numbers, tax ID numbers, et cetera.
But ultimately, you want to think about those kind of minutiae things of, hey, some of my best clients might be people that have trust accounts. So you don't want to be in a position where you're like, well, let me get all of these accounts moved, and I'll come back to get this trust account. And it's like, it needs to be smooth. And so those are the kinds of things that matter.
[00:19:58] Speaker A: In a contested breakaway.
[00:20:00] Speaker C: In a contested breakaway. And I think really, in any breakaway to some extent, but for sure, in a contested breakaway where you've got a small town that you're cohabitating with other financial advisors from the same firm that you're in, it's critically important.
That's why we ended up choosing Pershing in our case. There's a lot of other things to kind of consider when you're making these decisions. Certainly there's economic decisions that come into play. What kind of fees do these people charge?
What's the online access like?
What do the statements look like?
Et cetera.
But ultimately, I think that for the purposes of initially breaking away, that transition experience is the most important.
There's also some things to consider in terms of alternatives. Okay, so if you're thinking to yourself, hey, I really want to be able. Which we're going to do another podcast on this soon. But if I really want to be able to offer private equity, private credit, structured notes, I've got all these kinds of things that I want to be able to do. There's going to be some custodians that a can't do it, and then some custodians that are limited in what they'll allow you to do. And then there's going to be also some that work better that you might say, hey, I could buy this private equity at a schwab, at a fidelity, at a pershing. But guess what? Pershing's got a really nice integration to where, when I put that order in over here on this system, that system communicates with this system, and it streamlines things so much more. So it's like, well, yeah, but I'm not going to do that. Very often, okay, doesn't matter as much to you, but if you're sitting here thinking, this is one of the reasons that I want to break away, is I want to be able to bring these more unique investment opportunities to my clients. That is another thing that, again, those little details matter. The biggest thing that took me until I actually broke away to really understand, I feel like, or really just for some reason, it just didn't really resonate with me that much is this idea that I no longer work for the custodian. Okay. And so you come from this world, particularly with us at Edward Jones, where I like to say that I was the custodian. I worked for the custodian. I was a representative, an employee of the custodian. So when it comes to interacting with the custodian, it's like you pick up the phone and you call the custodian, who's a coworker of yours, right?
And so it's just easier from that standpoint. But then you've got all these conflict of interest issues and limitations, et cetera. Whereas now, today, with us saying, hey, we've got money at Pershing and Schwab, for example, you pick up the phone and you call Pershing. And certainly we get along with those folks, right? But at the end of the day, I don't work for them. And so therefore, I'm kind of almost more in this position of, they are here to support us, of course. But when it comes to documentation, paperwork, all these kinds of things, there's a heightened level of scrutiny, maybe would be the way to look at it. So there's some things that I can think of that when we were at our previous broker dealer, Edward Jones, it just seemed like it was easier to do.
Uh, maybe less paperwork required, et cetera, or just paperwork got processed faster, whatever it may be, that when you're now in this other relationship, you're kind of almost more of like you're just this representative you're serving in a fiduciary capacity on behalf of your client, and you're communicating with this third party, the custodian who works for us.
They're a vendor, almost more so. And so there's just kind of this different relationship that exists there.
Talk about Nigos. I never even knew that term. What is a nigo Taylor?
[00:24:22] Speaker A: Yeah.
Nigos were the bane of our existence for many months. Nigos, was it not in. Good.
So Nygos are when you type in someone's Social Security number and you transpose the numbers or you fat finger something.
[00:24:41] Speaker C: Their address isn't in the system correctly.
And then it's like, well, we need to see a copy of the client's driver's license. And then again, you go back to that momentum issue. It's like, right?
[00:24:54] Speaker A: You're going back to the client being like, well, what's your Social Security number? And they either told it to you wrong or you typed it in wrong, or whatever it was. And here you go. Where it's been a week or two weeks because you thought the paperwork was good and there's an issue with it.
I think the way to think about kind of back on the.
How do you pick when you're doing the due diligence that you should do on the custodian options, when you're looking out on the landscape, you just need to think of what's important in terms of your clients. Do they want brand recognition? Do they want to see a schwab?
Does that matter? That Schwab does commercials and Mellon Pershing doesn't?
[00:25:51] Speaker C: Or, like, you know, we talked about, like, everybody's heard of Raymond James, but then it almost can be like a double edged sword where it's. It's a comfortable. I'm comfortable with that brand. But then maybe, how do I distinguish myself now from the Raymond James office? That's an employee model that they're commissioned, broker dealer, whereas I'm this fee only RIA. But their statements are going to look the.
[00:26:20] Speaker A: So that's the kind of thing that you just need to think about what's going to have the highest likelihood of resonating with clients.
Are they going to care that they've never heard of the custodian? Most likely, if you told them that.
[00:26:37] Speaker C: Does the custodian compete with you, too? Is another question. Yeah.
[00:26:40] Speaker A: If you told them Pershing is the custodian where your money is going to be held safe and they're going to go, I've never heard of that. Is that going to be a problem, or are you going to explain it in a way that makes them feel comfortable? Because all the custodians, all they do is keep the client's money safe and put their logo on the statement. And so whatever that needs to be for your client, that's a big decision in whether you go with Schwab or Raymond James or BNY, Mellon Pershing. Is that, do you care that they have commercials or not? Or is it a good thing that they don't have commercials? We actually didn't want the custodian to do a bunch of commercials because we were breaking away in a period of time where it was like, you never knew what kind of commercials they were going to put out there. It was like, who knows? And so you just said, look, I don't want the backlash. If there's some type of commercial that my clients don't agree with, I don't want to have to answer questions about that. So I'm going to go with somebody that doesn't even do commercials.
[00:27:46] Speaker C: Yeah. We really wanted our clients to feel like they are associating with us, our brand. Right. They don't think of it as, like, my money's with Pershing, even though technically it is, legally it is. They're the custodian. We're not the custodian of their dollars, but we want them to feel like holistic planning is who I'm working.
That was. That was another reason to go with. But again, it's a double edged sword. To your point. It's like, do you feel like you can explain that to people? And we obviously did, and we had great success, because at the end of the day, clients can look at that. They can look up BNY Mellon, and you can say, hey, I seem to recall being one of the pitches. What? It was the longest standing bank in America and one of the largest custodians overall of all assets in the United States. And a billion dollars of excess insurance above and beyond SIPC and all of the kind of the talking points.
[00:28:51] Speaker A: Yeah. Those are things you're going to need to learn, if that's what you picked. But if anybody's listening to this that thinks that we don't care if people use Pershing, we are agnostic. We literally do not care.
There's a bunch of things about pershing that we don't like. They just happen to, at this point in time, have a lot of the things that the breakaway advisor in a very contested small town type of thing is probably they should take a close look at, because I personally think it really helps move a good chunk of your book that you otherwise might not move if you.
That's someone like a schwab or like a fidelity. I just really think you've got to keep the momentum up with these clients. Or they might come eventually, but they might wait six months.
[00:29:47] Speaker C: Yeah, exactly.
[00:29:48] Speaker A: Or a year. Because why? Because somebody whispered something in their ear in between the time that they said yes to you and that they signed anything.
Right.
[00:30:00] Speaker C: Yeah.
[00:30:02] Speaker A: That's that momentum that we talk about. You've got to keep that going. And it's good, because then it's also, like, the psychology of your own breakaway.
[00:30:14] Speaker C: Right, exactly.
[00:30:14] Speaker A: These wins, these early wins really help you wake up the next day and go and hit the phones hard.
[00:30:22] Speaker C: Exactly.
[00:30:23] Speaker A: And keep that momentum in your mind. And the psychology of it, you got to keep that mindset strong. And if you get some early losses like that, where they call you back and go, actually, they don't ever answer the call.
[00:30:40] Speaker C: Right.
[00:30:40] Speaker A: They don't ever answer the phone.
[00:30:41] Speaker C: Well, you only get one phone call, too. Right?
[00:30:43] Speaker A: Well, if they're like, yeah, I want to come. And they sign the non solicit and they're like, cool, and then they just never can't get a hold of them because somebody has changed their mind. That is hard.
[00:30:56] Speaker C: Yeah, exactly. Even if it just happens a couple of times, especially in those early days, we'll call it the first month, you're just in the fog of war. And so it's kind of like when I told that story about the very first client. You just need those wins early on. You need the wins. It goes a long ways to making it easier to show up the next day and to be like, hey, this was not a are we are successful here, and we're going to be know. To her point, there are plenty of know, Danny, I'm sure if you're listening to this, you mean, we've had problems with pershings over the.
But. But again, I think net of all the good and net of all the bad, I think that it was the right decision for us. And I will go to my grave defending that decision that who knows where we'll be in five years, right? I mean, at the end of the day, they have to keep earning our business. That's the beauty of the whole thing, right? Is like, we're independent. We own the book. They're a vendor of ours. The vendor has to do a good job of doing what they do for our clients and bringing value. And if they can't or don't or won't, well, then they're not guaranteed to keep our business forever. And so that's really a very refreshing place to be.
[00:32:23] Speaker A: You kind of mentioned earlier that some custodians, you could see them as they compete against you in other business segments.
[00:32:33] Speaker C: Yeah.
The elephant in the room. Schwab and fidelity.
Those are, the two largest custodians in the Ria space are Schwab and fidelity.
And both of those are opportunities where.
How do you know that clients, I mean, at the end of the day, they can do business with them individually if they want to. And both of those firms employ financial advisors. So I'm not suggesting that those folks are directly soliciting your clients, but they are running ads on TV.
And it does make it very easy for somebody to just say, hey, I think I'm just going to diy this. Right, if they wanted to. And that's why it's important that you got to be delivering more value. So that's a separate conversation, of course. But at the end of the day, it's at least something that you have to consider in this whole dynamic is, do I want my custodian to be competing with me or not?
[00:33:39] Speaker A: Something that's also nice, though, about at some point either day one or a year in of having that relationship with Schwab is that there's a ton of people that have money at Schwab.
[00:33:54] Speaker C: Exactly.
[00:33:54] Speaker A: That you're going to run into. And they're going to go, oh, yeah, I've got a schwab account.
[00:33:57] Speaker C: Our biggest client of all time.
[00:33:59] Speaker A: Yeah. And so you're going to go, well, that's so convenient, because we custody there, we can just, with one form, one form, move your money. And now it's under our. We can advise on it.
That's kind of like everything in this business and in life. That's the good and the bad.
[00:34:18] Speaker C: Yeah, exactly.
[00:34:21] Speaker A: But I can just tell you, it doesn't make any sense. It just does not help you to have multiple custodian options from day one.
It's easy to have them. It just makes your staff in your life so much more complicated than it really needs to be. When your main focus should not be spooling up how to open accounts on multiple different platforms and doing adding a bank and which one needs a check and which one doesn't.
Why would you do that to yourself for the sake of.
I don't even know what it would be for. Just because you have options. You want options and because you can. Should you?
[00:35:07] Speaker C: Yeah.
[00:35:08] Speaker A: And we would suggest that just because you can doesn't mean you should. And if you really want to be successful in getting more than 75 or 80% of your clients to move, you really should just focus on picking one, and picking one that makes the most sense for you and your clients in the environment that you're going to be transitioning in.
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