As Mark Tibergien gets ready to hand over the leadership of Pershing’s RIA business to his protégé Ben Harrison, there is change afoot at Pershing. The firm, which until recently targeted RIAs with a minimum AUM of $250 million or higher according to Harrison, is now courting all SEC registered firms (firms with at least $100 million in AUM). Furthermore, Pershing is open to working with large SEC registered advisors that will initially custody less than $100 million with Pershing if they have a growth plan to bring new assets to Pershing in the future.

“Overall, our goal is to work with growth minded advisory firms that are enduring businesses that are professionally managed,” said Harrison.

Why the change in approach? According to Harrison, there are several factors in play. First, the business is going through a period of significant to disruption, and Pershing sees opportunities.  Second, Pershing now believes they have the scale and capabilities to compete more effectively with other leading custodians for all SEC registered advisory business. In addition, Pershing sees the convergence of their clearing business with the RIA model, which will lead to additional scale and efficiencies.  

SUBSCRIPTION-BASED PRICING

As part of this more expansive approach to the RIA custody business, Pershing is introducing subscription-based pricing for RIAs. Harrison believes this new pricing model better aligns with fiduciary RIAs.

“Pricing in the custody business has been primarily driven by the consumer business,” he said. Because Pershing is a business-to-business provider and does not compete with RIAs, Pershing looks at the competitive landscape a bit differently. For years, custodians made money off of product that subsidized the services they provide to advisors. More recently, it has been cash. We all know that the model at our competitors is to make money off of the cash balances in order to subsidize the custody and technology services that they provide. We think a subscription-based model better aligns the interest of the clients with those of the fiduciary advisor. It is more transparent for both the advisory firm and for the end client.”

Under the subscription model, advisors pay a flat fee, which starts at $25 per month per account. Pricing scales up based upon the size of the account and the complexity of the account. According to Pershing, typically large accounts hold a more complex mix of assets and require a higher level of service, so fees take into account these factors. For this price, clients receive a much broader range of free services than those offered by competitors. For example, with Pershing, not only are equity and ETF trades free, but so are mutual fund a fixed income trades. A “hybrid, tiered cash management option” is included. This means that clients receive a competitive rate of interest on cash deposits, however they receive a higher rate on the whole balance, from dollar one, if they maintain a cash balance of over $100,000 in the account. The idea is to give clients an incentive to consolidate their cash with Pershing, thereby making it transparent to the advisor. The account includes ATM access for the client. The offering also provides access to new BNY Mellon ETFs at no transaction fee. Two, a US Large Core Equity Fund and a Large Core Bond fund, will have an expense ratio of zero. Six other funds to be part of the initial launch: US Mid Cap Core, US Small Cap Core, International Equity, Emerging Market Equity, Short Duration Corporate Bond, and High Yield Beta ETF will all have low expense ratios.

Harrison emphasized that this new pricing model has received good feedback from advisory firms so far, but that the model will evolve over time to better serve the needs of fiduciary advisors and their clients.

For those advisors that prefer a model that competitors offer with zero fees on equity and ETF trades, but fees on other trades and negligible interest payments on cash balances, Pershing will offer that model as well.

SAFETY, SCALE AND RESILIENCY

Harrison believes that Pershing has never been better positioned to bring in new business. From a business continuity standpoint, Pershing believes they are second to none. Things like the resiliency of a platform and the way a custody platform performs under stress are not things most advisors think about on a daily basis, but when market turbulence hits, like it has recently, safety, scale and resiliency become paramount.

After chatting with Harrison, I get the impression that he will be much more aggressive than his predecessor competing for the business of all SEC registered RIAs that are growth-oriented. I also believe that the new subscription offering is only the opening salvo in Pershing’s renewed push into the RIA custody space.