The marketplace for custodians looking to work with registered investment advisors in the wake of Charles Schwab Corp.’s acquisition of TD Ameritrade Holding Corp. is getting more crowded. Another entrant, a firm with decades of experience as a custodian of self-directed IRA assets, is shifting its focus to smaller RIAs and launching a new business line, called Innovayte, to do so.
Equity Advisor Solutions and ETC Brokerage Services announced Thursday they have formed a custody and clearing company to work with and support entrepreneurial independent RIAs, targeting firms with $100 million to $800 million in client assets. They are affiliated with Equity Trust Co., a provider of self-directed individual retirement accounts and alternative asset custody services that was founded in 1974 and has $37 billion in client assets.
Equity Advisor Solutions and ETC Brokerage Services are owned by Richard Desich and Jeffrey Desich, according to BrokerCheck.
Innovayte, the new company, will be led by Catherine “Cat” Davies, a clearing and custody industry veteran who started in 1999 and has worked at Charles Schwab, Fidelity Investments and, most recently, the giant RIA Hightower Advisors.
“We are working toward minimum, probably $25 million in assets under management but focused more on the $100 million to $800 million firm,” Davies said in an interview this week. “That’s our sweet spot where we’ll do very well.”
When asked whether Innovayte would seek to mimic Schwab’s zero-fee custody charge to RIAs, which some Schwab advisors regard as essential, Davies said, “We won’t do a zero sweeping charge, but we’re not opposed to it if it makes sense.
“Custodians make money on cash balance revenue, but also on transaction revenue,” she said. “Broker-dealers like LPL Financial and Raymond James have made a push into the custody business. You really need the whole stack, including clearing brokerage transactions, to make money.”
RIA custody, an industry that involves trillions of dollars of client assets but has long been characterized as a commodity with low margins, is replete with firms that weren’t on the map before the Covid-19 pandemic and are now chasing RIAs. The Schwab-TD merger is in large part responsible for the new entrants, with new custodians trying to capitalize on financial advisors’ search for a variety of custodians after the merger.
Innovayte is not alone in looking to make an entrance in RIA custody.
Goldman Sachs Group Inc. has made a concentrated effort to break into the RIA custody business in the past couple years, targeting financial advisors who are leaving the Wall Street wirehouses and carry lots of client assets. And financial technology provider Altruist this year moved to the next level by developing its own custody and clearing business.