Perhaps the most important element of forming a registered investment advisor (RIA) is choosing the right custodian for your clients' assets. A good custodian can be a new firm's best friend and biggest asset, or it can turn a new business into a friction-filled daily grind. Prior to entering a custodial relationship, a thorough screening of multiple custodians must be completed. Numerous factors should be considered during the process, but there are three fundamental traits your custodian should possess.
1. Customer service is king
The backbone of any good company is excellent customer service. With a custodian, that customer service should come on two fronts: service to your clients, and service to you, their client. When it comes to your clients, the custodian should be easily accessible and able to handle your customers' inquires. Obviously, in an ideal world, your client will call you, but clients can get confused and call the custodian. Unfortunately, there are custodians that do not want to talk to your clients. They will not try to help a confused client and simply direct the client away. This is poor customer service and it can cost you a client. The custodian you choose should be ready, willing, and able to help your client.
When it comes to serving you remember that you are their customer. Ideally, a custodian will have a well-trained, dedicated team or department just for your firm. This team will take the time to get to know your firm, its workers, and its processes. In a sense, the custodian's team will become an extension of your firm by working with your staff to ensure rapid turnaround on things such as new business paperwork, withdrawals, minimum distribution requests, etc. A custodian that works as your business partner assisting on solving problems can make all the difference in the world to your daily business.
2. The custodian's trading platform must handle all aspects of your investment portfolios
As a new investment advisor, you have put countless hours into creating your money management philosophy. Nothing could be worse than finding out that your new custodian does not have access to the investments that you want to use in your portfolio. You should make a list of specific investments that you will want to own and ask every custodian if you will have access to those investments. While it may seem like a fundamental part of a custodian's existence, there are several custodians that do not carry certain mutual fund families or exchange traded funds. If the custodian does not have access to your specific investments, you will want to keep interviewing additional candidates.
3. The custodian's technology needs to increase your productivity
Over the past few years, many custodians have put millions of dollars into their technology platforms in an attempt to attract new investment advisors. These new platforms offer various services and technologies that an investment advisor had to pay for just a few years ago. The new platforms often include billing, data backup, performance reporting, compliance monitoring, bulk trading, account rebalancing, account reconciliation, CRM, and much more. Whichever technology you choose, it should be easy to use and implement, thus, increasing your firm's productivity. More importantly, the custodian should train your staff on how to use the technology. After all, the world best technology is worthless if no one knows how to use it.
These three aspects of a custodial relationship -- customer service, available investments and technology -- are critical elements to your success as an investment advisor. They should be considered part of the foundation of your relationship with your custodian. If a prospective custodian cannot help you in all three areas, you must move on to a new custodian.
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