As registered investment advisers have continued to capture market share among wealthy families and smaller asset management funds, their investment profiles have grown increasingly institutional in nature. For many RIAs, this development has also meant a growing need for institutional-quality back- and middle-office infrastructure.
Robert Moore, managing member and chief executive officer of Garden City, New York–based Concept Capital Markets, has seen firsthand the uptick in advisers and family officers searching for complex custodial services. “Essentially, what we are seeing is advisers demanding the types of risk and operational support that until now had been reserved for fund managers,” says Moore, who notes that ten years ago such complex issues would have been unusual for family-focused investment practices.
One of the biggest operational challenges facing advisers is how to integrate multiasset, multicurrency-denominated custodial platforms into a unified management process that accurately gauges client risk. “For instance, a typical adviser today may want to be certain that all trade finance exposures are netted out across various custodians to cut down on client expenses,” Moore says.
This problem has come up frequently for John de Carvalho, director of portfolio management at investment advisory firm Rainier Group in Bellevue, Washington. Rainier, which oversees more than $750 million in assets for wealthy families and advises corporations on cash management, recently expanded its custodial providers after nearly a decade of working on a single platform. “The ability to handle fixed-income portfolios in multiple-currency regimes is critical for us moving forward,” says de Carvalho. After a lengthy vetting process, the firm ultimately settled on BNY Mellon subsidiary Pershing Advisor Solutions to oversee non-U.S.-dollar-denominated assets, bolstered by a third-party integrated portfolio management system.
It’s not just the nature of assets that has created new needs for advisers, but also how actively such assets are traded. Custodial service providers for family offices and RIAs have been reporting that more and more firms are bringing complex money management functions back in-house. BNY Mellon affiliate ConvergEx, a brokerage service provider to institutional investors, attests to this trend. “Depending on the strategies being executed, the overlapping investment and operational needs may simply become too complex for a standard wealth-management-focused custodian,” says Michael DeJarnette, president, ConvergEx Prime Services. He and his colleagues have also noticed that as more advisers take active control of portfolios inside the organization, they are increasingly hiring talent away from asset management firms. For the most part, these professional portfolio managers had been accustomed to real-time risk management and a robust middle office that could handle complex clearing and custody issues at their old positions and are demanding the same level of control at their new firms.
Whereas smaller, specialized firms such as ConvergEx and Concept Capital have long operated in this space, large firms have also been making inroads. In October Fidelity Investments announced a partnership with Goldman Sachs and New York–based CAIS Group to offer alternative and structured investment products to RIAs and family offices on its institutional wealth services platform. The new offering will resolve some of the operational and risk analysis issues that have faced advisers on the Fidelity platform in the past while keeping assets in-house, rather than on second-party prime brokerage platforms.
Read more about registered investment advisers.
