Wells Fargo now has a testing paw in the RIA stream

Like a cat at the edge of a stream, Wells Fargo & Co. has placed one testing paw into the RIA waters by establishing a clearing arrangement with an emerging RIA custodian — Trade-PMR, Inc..

The huge San Francisco-based financial institution – already perhaps the most multifaceted bank in the United States – has the relationship with the Gainesville, Fla.-based RIA custodian through its First Clearing unit in St. Louis, Mo.

Bedfellows

Historically, RIA custody and full service brokerage have made uncomfortable bedfellows, though the big financial services firms continue to try — tentatively — to make it work.

This is a value proposition that RBC Advisor Services is pursuing unabashedly. See: Royal Bank of Canada is hustling to become an RIA custody force

Merrill Lynch has offered RIA custody through its Broadcort division for years but hasn’t replied to an inquiry from RIABiz about it in more than 18 months. See: In major reversal, Merrill turns away RIA assets.

MSSB and UBS also do some of this business on the side and keep it quiet. These arrangements are typically done on an ad hoc basis through a stock broker.

BNY Mellon has a custody unit but it hasn’t released any news since the announcement of its coming out a year ago. See: BNY Mellon’s new RIA custody unit will collaborate [and compete] with Pershing Advisor Solutions.

Wary of wrong impression

These firms are wary of giving their employee-advisors the impression that independent advisors get all the benefits of the company’s arsenal without the compliance restrictions and share of payout.

Wells Fargo is already a sprawling enterprise that offers more options than the other wirehouses.

Wells Fargo encompasses employs 14,000 brokers from the former franchises of Wachovia, A.G. Edwards and Prudential Securities, which makes it both a large wirehouse and a mega-bank.

(It is also likely to acquire another wirehouse, UBS, predicted Chip Roame at his Tiburon CEO Summit in New York City on Thursday, according to the company’s website.)

Wells Fargo also includes FiNet, a 1,000-advisor independent broker-dealer arm – something that other wirehouses do not offer. See: Wells Fargo emerges as independent channel competitor

Wells Fargo’s sprawling size works for or against it, depending on the advisor you speak to. See: Why one Wells Fargo defector had no use for wirehouses, IBDs or the RIA model.

Depth and breadth

Despite all that depth and breadth of offering, it does not have the in-house ability to custody the assets of an independent RIA.

The relationship with Trade-PMR is scheduled to be activated in August. Negotiations between First Clearing and Trade-PMR took about seven or eight months, according to Robb Baldwin, CEO of Trade-PMR.

“They’re going to refer business to us. ... They get multiple inquiries of people that want to go RIA ... but we will not recruit Wells Fargo advisors,” says Baldwin.

Tony Mattera, spokesman for Wells Fargo, says the referrals would come from First Clearing itself.

“First Clearing can recruit (advisors) for its client firms; they have a recruiting department. It’s a distinction that First Clearing has.”

The deal has significant benefits for Trade-PMR, too.

The immediate benefit to Trade-PMR of replacing Sterne Agee with the bigger clearing outfit will be that it gains ACH (automated clearing house) capabilities. This allows it to move assets between bank and brokerage accounts seamlessly. This is a benefit to advisors who want to provide this capability to their clients.

Wells Fargo coaches

Trade-PMR advisors will also have access to a grander product array, including banking and trust products through Wells Fargo. Another benefit: Each Trade-PMR advisor will be assigned a coach through Wells Fargo’s Growth Accelerator program, a personal training program first developed at A.G. Edwards. The training ranges from use of investment policy statements to writing thank you notes, Baldwin says.

These new capabilities could close an important gap in its efforts to recruit wirehouse brokers.

“A lot of guys leaving the wirehouse world lose so many of the products they wanted (from the wirehouse arsenal); we wanted to find a way for an independent advisor to (be able to offer) what they did in the wirehouse world.”

Shareholder Services Group, which competes with TRADE-PMR for small and emerging RIAs, has a similar relationship with Pershing LLC, the clearing unit of BNY Mellon.

But Baldwin pointed out that SSG’s is in a trickier situation because BNY Mellon does have an in-house custody arm: Pershing Advisor Solutions. “Pershing competes with (SSG); if you have $100 million (of AUM), why would you go to Shareholders Service Group?”

Pershing advantage?

Peter Mangan, CEO of Shareholders Service Group Inc., which serves as custodian for more than 800 RIAs, says that his company finds Pershing to be a terrific source of referrals and that there aren’t size constraints at $100 million.

“Advisors with over $100 million certainly do come to us; Financial Planning magazine ranked our technology superior to Pershing Advisor Solutions. We really get quite a few referrals from Pershing; it’s not just a question of size. It’s what an advisor needs.”

Advisors doing asset allocation and managing mutual funds tend to be a better fit with SSG, and Pershing seeks more sophisticated advisors with a prime brokerage and hedge fund orientation, he adds. “Pershing still gets the (assets even if SSG gets the account) so there’s no conflict,” Mangan adds.