Just four firms control an estimated 84% of assets custodied in the registered investment advisor (RIA) channel. While barriers to entry have made it difficult for new and boutique custodians to compete with these entrenched incumbents, Cerulli finds RIAs are more likely to add a new custodial partner than unwind an existing relationship. Emerging custodians can capitalize on this opportunity by filling in perceived gaps for existing RIAs or by helping breakaway advisors establish new independent RIAs, according to The Cerulli Report—U.S. RIA Marketplace 2022.

Given the composition of the RIA channels, most firms have a single custodian. Among all RIAs, 73% manage less than $250 million and, therefore, the plurality (44%) only works with one custodian. However, RIAs may begin to evaluate the number of custodial relationships they maintain as their firm grows or their needs evolve. For instance, RIAs will oftentimes add custodial partners if they engage in M&A and are onboarding a new advisor or team that custodies elsewhere.

According to Cerulli, one in four RIAs are exploring adding a custodian in the next year. Yet only 4% of RIAs have switched custodians in the past 12 months. “The logistical challenges of switching custodians make it rare that RIAs drop an existing custodial partner entirely,” says Marina Shtyrkov, associate director. “Instead, RIAs are more likely to add a new custodian to fill any perceived gaps in service or capabilities.”

For emerging custodians, this presents a potential opportunity. Given advisor reluctance to change custodians, they can win business by offering solutions where others have made limited headway, or by targeting breakaway advisors and helping them establish RIAs. Newly created RIAs lack any pre-existing custodial relationships or loyalties and represent a growing pool of assets as more employee-based advisors transition to the independent model.

“The transition process for breakaways is already a period of disruption for their clients and repapering is unavoidable, rendering those common objections irrelevant,” says Shtyrkov. “Emerging custodians interested in the breakaway opportunity should build out experienced sales and support teams that can expertly navigate these advisors through the transition to independence,” she concludes.