Invest1 publisherNot yet confirmed elsewhere3 min readPublished
Fidelity's $100 million minimum pushes small RIAs to pool assets, switch custodians or grow
Fidelity has set a $100 million asset minimum for RIA clients, whose median firm already runs $328 million, according to AdvizorPro. Advisers below the line can pool assets through a consolidator, move to another custodian or grow, and each route has a cost.
The Investor · Invest desk
What happened
- Fidelity serves about a quarter as many RIAs as Charles Schwab but holds roughly 80% as much in managed account assets, according to AdvizorPro.
- American Banker sets out three routes for firms under the line: join an aggregator already at Fidelity, move to another custodian, or grow past $100 million.
- Advisory Services Network co-founder Tom Prescott says his network already meets Fidelity's requirement, so its member firms can keep their Fidelity relationship.
- Datos Insights' Will Trout says acquired RIAs often keep client relationships but lose independence on back office, compliance, technology and pricing.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- decision Owners under $100 million now have to decide whether keeping Fidelity is worth selling even a minority stake, and with it some control, to a consolidator.
- cost Firms that pool through an aggregator pay its fees out of their own earnings, a standing charge for staying at Fidelity under another firm's filing.
- constraint Switching custodians usually means repapering client accounts, an onerous process that makes a move to Schwab or Altruist slower than signing with a network already at Fidelity.
Divide one AdvizorPro ratio by the other and Fidelity's average RIA client holds about 3.2 times the assets of Schwab's, because 80% of the assets sit with a quarter as many firms [19]. The gap between the two medians is about 3.1 times [20]. Fidelity already served larger advisers before it drew any line. The $100 million floor sits $7 million under Schwab's median firm of $107 million [2] [21], in the middle of its biggest rival's client list.
American Banker's view is that top-tier custodians are having a hard time making money from small firms [23]. The report does not give Fidelity's own reasoning. Tom Prescott, co-founder of Advisory Services Network in Atlanta [18], framed the economics as a question. "Put it this way, for a $50 or $75 or even $100 million advisor, what's going to be the service model?" he said. "It doesn't matter whether it's Fidelity or any of the other custodians." [8]
Prescott sells one of the exits. ASN's Form ADV filed on Oct. 1 lists more than 150 firms with $10.6 billion between them [6], or at most about $70.7 million per member [22]. The average member is under Fidelity's line on its own, and the pooled filing is what keeps its Fidelity account open. ASN does not buy the firms that join [9], and Prescott said firms prompted by the minimum have already approached him [11].
Pooling works only if the aggregator actually reports its members together. "If the aggregator files separately for each acquired firm, the RIA doesn't benefit from scale," said Will Trout, director of securities and investments at Datos Insights. "This is a material question most RIAs skip over." [10] Many consolidators also want at least a minority ownership stake in the firms they buy [14].
Moving opens up Schwab, Pershing, Interactive Brokers or a newer custodian such as Altruist [15]. "Ultimately, your custodian is a vendor, not a partner any more. Know how they get paid, get commitments in writing, and always know how you'd leave. Basically, everyone should now have at least one foot out the door," said Tim Welsh, founder of Nexus Strategies [16]. Growing is quickest for firms that already split clients across custodians and can concentrate them at Fidelity. The rest have to win more assets from existing clients or buy another firm [17].
This can resolve three ways. Other top custodians could set floors of their own, and American Banker's claim about top-tier economics would hold across the industry. Schwab and the newer platforms could absorb the firms Fidelity turns away, and the minimum would amount to Fidelity sorting a book that was already skewed large [19]. Or most small firms could pool through consolidators, leaving Fidelity with their assets and fewer relationships to service one by one.
I think the third is the most likely. The exit that takes the least effort leaves the money where it is, and the inbound calls Prescott describes point the same way [11]. In that outcome Fidelity no longer serves a stand-alone $50 million firm directly [1] but still holds its assets through a network. The view is wrong if ASN-style networks report flat membership on their next filings while Schwab and Altruist sign up large numbers of new small advisers.
What to watch
- A comparable asset floor at Schwab or Pershing would show the small-firm economics extend past Fidelity.
- Fidelity's own explanation of the floor and its effective date, neither of which appears in the American Banker report.
- Member counts on the next Form ADV filings from ASN and other Fidelity-based networks, the clearest sign of whether small firms pooled or left.