For anyone trying to understand the wealth management industry, in general, and the clearing and custody business, in particular, the most important concept is likely basis points.
That's industry-speak for hundredths of a percentage point. And those numbers speak to how most wealth management firms and their service providers do business by collecting their share of basis points out of the fees paid by clients. With traditional commissions and fund expense ratios falling off a cliff in recent decades, service providers like giant custodian BNY Pershing are trying to adapt to a much different industry with drastically lower margins.
In fact, Mark Tibergien, who was CEO of Pershing Advisor Solutions, the company's registered investment advisory firm custody and services unit, from October 2007 to June 2020, told Financial Planning that, over his tenure, the firm's revenue-per-asset tumbled. The number dropped to about a third of its previous size to between eight and 12 basis points by the time he left from around 25 to 30 when he started at Pershing.
So it's not surprising that Pershing began charging at least some of its RIA clients a custody fee last year for the "services that help them run their businesses more effectively and efficiently," Tibergien said in an interview. Since transaction fees have fallen to "virtually zero right now, in terms of margins" and profits are falling across the board for custodians, companies like Pershing are finding new sources of revenue, he said.
At the same time, they're trying to maintain their traditional safekeeping, surveillance and operational duties for advisory firms while meeting the growing service and technology demands of financial advisors and their clients.
That's industry-speak for hundredths of a percentage point. And those numbers speak to how most wealth management firms and their service providers do business by collecting their share of basis points out of the fees paid by clients. With traditional commissions and fund expense ratios falling off a cliff in recent decades, service providers like giant custodian BNY Pershing are trying to adapt to a much different industry with drastically lower margins.
In fact, Mark Tibergien, who was CEO of Pershing Advisor Solutions, the company's registered investment advisory firm custody and services unit, from October 2007 to June 2020, told Financial Planning that, over his tenure, the firm's revenue-per-asset tumbled. The number dropped to about a third of its previous size to between eight and 12 basis points by the time he left from around 25 to 30 when he started at Pershing.
So it's not surprising that Pershing began charging at least some of its RIA clients a custody fee last year for the "services that help them run their businesses more effectively and efficiently," Tibergien said in an interview. Since transaction fees have fallen to "virtually zero right now, in terms of margins" and profits are falling across the board for custodians, companies like Pershing are finding new sources of revenue, he said.
At the same time, they're trying to maintain their traditional safekeeping, surveillance and operational duties for advisory firms while meeting the growing service and technology demands of financial advisors and their clients.
2 months ago
