BIG BUSINESS Top domestic custody banks by total assets under custody: State Street:             $9 trillion Bank of New York:    $8.9 trillion JP Morgan Chase:     $8.3 trillion Citigroup:                  $7.3 trillion Mellon:                      $3 trillion Northern Trust:         $2.3 trillion (Source: Global Custodian Magazine)

NEXUS OF KNOWLEDGE
Of course, one of the main objectives of most financial advisors is to attract assets under management, and the custody banks are attempting to use their information advantage to secure clients. (Fees on assets under management are often at least double the fees charged for custody.)

Also, those who wish to get the information advantages of centralized custody can do so while paying for investment advice elsewhere. “We have clients for whom we hold 100 percent of their assets, but don’t manage any of it,” Hoffman notes. “We offer stand-alone custody for a fee and can unbundle services too.” Clients who use other advisors and have managers in place can still take advantage of Northern Trust’s analytics and information. “They might want a holistic review to be sure they’re getting the best asset management strategy,” Hoffman says. “For a fee, we would provide a comprehensive analysis of their current situation and goals, an optimal asset allocation based on their personal holdings, foundations, etc. At the end of that analysis, they may want Northern to manage some of the money, all of the money or simply act as a custodian.”

This is good news because most affluent individuals already have their assets in custody at several institutions. “Our clients may be family offices or individuals who work with multiple asset managers,” Cummings says. “Each advisor has custodians they prefer to work with and where they like to concentrate business.” As a result, the Bank of New York has an open-architecture platform that allows clients to maintain relationships with multiple advisors. “We can provide that centralization of data no matter how many advisors or investments you have,” he says. “Because custody is a business of scale, many private and regional banks simply don’t have the resources to do it in-house, so they sub their custody out to people like us.”

The only value-add in custody is doing it correctly.

RELATIONSHIP ADVICE
Most clients choose a financial advisor based on a long-term, multifaceted relationship, and not on just one issue such as information or analytics. This means the market for financial advice is fragmented, notes Rod Wood, executive vice president of wealth advisory services at Wilmington Trust. He believes custody is a matter of scale, while relationship management is a matter of skill. “There aren’t many businesses that I know of that have done a great job of both skill and scale.” According to Wood, Wilmington Trust custodies about $100 billion in assets for clients for whom it provides core services—estate and trust planning, and asset management—at the client’s request. Otherwise, their clients may have multiple custodians. “We recognize that we cannot be all things to all people, and we choose to focus on our core competencies,” he explains.

For clients holding $25 million to $50 million and above in net worth, the attitude in the family often changes from one of growing money to stewardship, says Jamie McLaughlin, regional president for Mellon Private Wealth Management, with $3 trillion in assets under custody. “Clients want to preserve and grow their assets, and place much greater focus on risk management. They’re looking for real-time information, security and confidentiality, simplicity, consolidation and, above all, performance analytics.”

Few expect the custody banks’ advantage in analytics and information to trump other factors, which the custodians themselves are the first to admit. “Like everyone else, we want to be their primary provider, but we realize that it is rare for clients at this level to rely on one manager to manage their wealth across all asset classes,” says Howard Weiss, wealth strategist in the Private Bank at Bank of America.

With most banks embracing open architecture, individual investors can therefore get the best of both worlds—they can retain their trusted financial advisors, meanwhile hiring a custodian that can provide best-of-breed data and analytics. 

Eva Marer, a New York-based financial journalist specializing in personal finance and philanthropy, has written for, among others, Financial Planning, Financial Advisor and On Wall Street. egresspress@aol.com

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