Advisors are still debating what the best custodial operating model is, while the wealth management sector continues to seek a solution giving advisors “the ability to change custodians, transfer assets and switch accounts faster and painlessly,” according to the findings of a new survey-based trend report, released Wednesday by F2 Strategy titled “For Advisors, the Perfect Custody Operating Model Remains Elusive.”
While some wealth managers are still selecting just one custodian, others are opting for many custodians, while others are doing it themselves, the report points out.
“So which one is ideal for advisors? No one actually knows,” says the report.
The report says, “Whichever approach a firm uses, it wishes it was doing something else.”
“Whichever approach a firm uses, it wishes it was doing something else.” – F2 Strategy report
Advisors Want More From Custodians
“Multi-custodian firms feel tired of managing different custodian accounts that require different workflows, while single-custodian firms feel stressed that switching clients to their custodian creates a negative experience,” the report says.
“Having a way to easily move between custodians benefits both custodians, who could gather more assets faster, and advisors, who wouldn’t have to disrupt their clients so much,” according to Doug Fritz, F2’s Co-Founder and Executive Chairman.
Advisory firms’ satisfaction with their custodial relationships fell to 3.4 out of five from 3.6 out of five in F2’s 2023 survey, the report says.
The data in the report was generated from a survey conducted by F2 in June, the firm says. The survey included responses from 42 RIAs, wealth management firms and broker-dealers representing $6.2 trillion in assets, according to F2.
Other key takeaways from the findings included advisory firms being frustrated with the lack of consistent application programming interfaces (APIs) across custodian platforms, with 68% of firms citing APIs an integration as important to their software.
“Larger, more complex RIAs have the funding and the technical teams to take advantage of APIs, but smaller firms do not,” the report points out. “Custodians focus most of their attention on integrations and APIs to support external vendors. In some cases, custodians charge extra to use APIs.”
F2’s advice: “A future innovation would be an API that can set up the shell accounts to transfer assets quickly. That API would bring the biggest benefits to single-custody advisors as well as custodians who can bring in more assets. Multi-custody advisors would also stand to gain as they could streamline their custodians.”
AI And Blockchain As Disruptors
Another key finding was that 66% of firms surveyed predicted that AI will be the largest disruptor in the custodian industry, as compared to 42% predicting blockchain technology will be the largest disruptor.
“AI’s value in the industry has become clearer more quickly than blockchain,” the report says. “AI wins seem achievable, while the opportunities for blockchain remain more complex to many industry professionals.”
“AI wins seem achievable, while the opportunities for blockchain remain more complex to many industry professionals.” – F2 Strategy report
However, although AI “appears ready to win the race, blockchain technology isn’t dead,” according to the report. “Possibilities still exist for it to reinvent areas of the business with some smaller use cases emerging.”
F2 urged advisors to press their custodians to identify areas where AI or blockchain technology could improve operational efficiency.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jeff.berman@wealthsolutionsreport.com.
