REUTERS/Brian Snyder
A Fidelity Investments office in Boston, where the company is headquartered.
- The registered investment advisory landscape is changing around Fidelity, the privately held, family-run financial services behemoth overseeing some $7.8 trillion in customer assets - and fast.
- David Canter, head of the firm's RIA segment, spoke with us about how Fidelity is billing itself to an independent advisory market growing in size and sophistication - while also undergoing custody consolidation.
- Since Fidelity is a private company, "I don't think advisory firms need to worry, 'who's going to own our firm,' or whether we're going to be the subject of a big merger," he said.
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The registered investment advisory landscape is changing around Fidelity, the privately held, family-run financial services behemoth overseeing some $7.8 trillion in customer assets - and fast.
Its clearing and custody arm's 3,950-strong client base stands at around half of Charles Schwab and TD Ameritrade's equivalents.
Now that the two are set to combine later this year and create a giant of brokerage and custody serving more than 15,000 advisory firms, Fidelity's smaller RIA business finds itself operating in a corner of the market growing in size and complexity - while also undergoing unprecedented custody consolidation.
"Despite all the challenges in the landscape, our number one mission is to be consultative," David Canter, the head of the firm's RIA segment, told Business Insider in a recent interview. "We look at ourselves as business consultants that happen to be within the wealth management vertical."
Canter, who joined the Boston-based firm just over a decade ago and worked at Charles Schwab's institutional business earlier in his career, has a rather simple pitch when it comes to keeping up a competitive edge.
Since Fidelity is a private company, "I don't think advisory firms need to worry, 'who's going to own our firm,' or whether we're going to be the subject of a big merger," he said.
Fidelity is also not "subject to the whims of the public markets," Canter said.
Maintaining a level of client service will be crucial to Charles Schwab and TD Ameritrade's efforts to address analyst and investor questions about potential attrition. And it lies at the heart of the two firms' integration, which is being led by Schwab's operating chief after the deal closes.
This all underlines the challenges of gaining sheer scale in an industry that was seen as primed for consolidation even before the proposed mega-merger was announced. Last year's 203 wealth management deals marked the seventh-straight annual record, according to the investment banking and consulting firm Echelon Partners.
Walt Bettinger, the chief executive of Charles Schwab, said on a call to discuss the roughly $26 billion merger - the largest US securities-brokerage deal on record, per research provider Dealogic - that "there may be some repapering required," when an analyst asked about the RIA business' integration.
"We're very confident that with the strategy of combining the best capabilities, both platform as well as people and service, that the combined organization will remain the premier custodian for independent investment advisers," Bettinger said. "And I think that as the dust settles, independent investment advisers will agree with that assessment."
At least one small RIA has challenged the merger with an anti-trust lawsuit filed in December, accusing the two firms of going about a deal that would end up harming RIAs with even fewer custody choices than they currently have, Bloomberg Law and other outlets reported. It was quickly dismissed.
Meanwhile hybrid and independent RIA assets are far outpacing other wealth management and brokerage channels as tools to set up shop become more widely available.
Hybrid and independent RIAs' managed assets have grown at a five-year compound annual growth rate of around 10% each through the end of 2018, according to the research firm Cerulli Associates' latest estimates. Hybrid RIAs, while they are independent entities, have an affiliation with a broker-dealer; "independent" ones do not.
And at the same time, so-called "breakaway" advisers and adviser teams - departing giant US wirehouses like UBS and Morgan Stanley and forming their own firms - are evolving in both size and "sophistication," Canter said.
Breakaway activity rose to a new record in 2019, with 655 instances, marking a 40% rise since 2015, according to Echelon Partners.
"RIAs are expected to continue to expand their footprint, taking assets from broker dealers and large wirehouses," the firm's report said.
Fidelity's institutional arm is split among clearing and custody, institutional asset management, and capital markets, together overseeing $3 trillion in assets under administration for more than 13,500 firms through June 30. Fidelity's clearing and custody solutions business oversees $2.3 trillion in assets under administration.