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“The fiduciary model is winning and we want to ensure that we’re serving advisory firms across that continuum. From our clearing business, we absolutely have an option for emerging RIAs and emerging advisors in that space.”

–Ben Harrison, Business Development and Relationship Management at BNY Mellon | Pershing

When Ben Harrison started at Pershing Advisor Solutions back in the mid 2000s, he was impressed by a certain industry consultant who was providing him with some great business leads. Little did he know that this consultant, Mark Tibergien, was soon to become their CEO and that 13 years later Ben would be taking his place. They’re doubling down on the RIA market segment and a whole lot more on this episode of Wealth Management Today.

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This episode of Wealth Management Today is brought to you by Ezra Group Consulting. If your firm is evaluating new technology or looking to improve your current wealth platform, you need to contact Ezra Group. Don’t spend another day using technology that doesn’t offer an elegant user experience. Your advisors and clients deserve better and you can deliver it to them with the help of Ezra Group.

Companies & People Mentioned

• Charles Schwab [34:49]
• E*TRADE [34:50]
• Goldman Sachs [35:40]
• Morgan Stanley [34:50]
• Netflix [33:37]
• Pershing | BNY Mellon [03:22]
• Spotify [33:38]
• TD Ameritrade [34:49]
• United Capital [35:41]

Topics Covered in this Episode

• What’s Changed at Pershing? [05:10]
• New Vision for the RIA Business [14:00]
• Strategic Move Down Market [16:00]
• High Touch vs. the Call Center Approach [23:00]
• Investing in Digitizing Custody [25:40]
• Are Monthly Subscriptions the Next Big Thing? [29:00]
• Mergers & Acquisitions [34:51]

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• #ItzOnWealthTech Ep. 45: RIA Technology Hoarding and COVID-19 with Kristen Schmidt
• 6 Smart Strategies for Managing Remote Wealthtech Employees
• #ItzOnWealthTech Ep. 46: The Mad Rush into Digital Advice with Bill Capuzzi

Complete Episode Transcript

Craig: Thank you everyone in the world of wealth tech for joining me today. This is the stay at home version of the Wealth Management Today podcast and I’m your host, Craig Iskowitz. I run a technology consulting company called Ezra Group and we help wealth management firms make better tech and business decisions through our research and advice. On this podcast I speak with some of the smartest people in the industry who are on the leading edge of technology and innovation. Please remember to subscribe and leave us a five star review on iTunes as well as sharing this podcast and every podcast we post on social media networks. Thanks again.

Craig: I was really excited to get this next interview with Ben Harrison from Pershing, because Pershing has been one of my clients for quite some time and I was very interested in this change of management from Mark Tibergien to Ben. I was happy that they made him available to me for this podcast and he was gracious enough to spend some time. We covered a lot of ground, from Pershing’s response to the COVID-19 crisis, to some of the data they’re seeing from their many broker dealers and many RIAs on the platform, trading volumes. Some comments from Ben on Mark Tibergien’s retirement, which is big news in the industry, and some of the things that he’s seeing, some of the things that they’re doing differently in the RIA market, I thought that was interesting. Talking a little bit about technology, pushing the envelope with tech, which Pershing has always been pretty good at, especially with NetX and their other tools. We touched on their new pricing strategy and a bit about the competitive landscape. Quite a full podcast episode for you. I’m looking forward to hearing your feedback on this, so please take a listen. I’m happy to introduce my next guest on the podcast is Ben Harrison, the Head of Business Development and Relationship Management at BNY Mellon | Pershing. Hey Ben.

Ben: Hey Craig, great to be with you.

Craig: I am happy to have you on the program. It’s great to meet you. Under these circumstances, it’s great to meet everyone, and we’re all doing our work from home deal. How many weeks did you say we’re into this now? I lost count.

Ben: This is week six on the work from home regimen here.

Craig: Time flies. My company is virtual so we all work from home, but I get how it’s completely different for people who are used to going into an office.

Ben: It makes for long days, that’s for sure.

Craig: It really kind of drags and merges together. You really have to make some boundaries or when your work time is and when your personal time is.

Ben: Absolutely. Absolutely.

Craig: So, I want it to be not the first one to congratulate you as, taking over as Head of RIA Business at Pershing as of June 1st.

Ben: Thank you. Thank you. I’m excited for the opportunity.

What’s Changed at Pershing?

Craig: I’m excited as well. I’ve been working with Pershing for awhile. I love some of the stuff you guys are doing. I was at the conference last year. Hopefully we’ll get back to conferences again. I was at the conference in Arizona last year. A lot of good stuff. But I wanted to go over a couple of things and we were chatting a bit before we started and, I’m really interested in Pershing’s response to the COVID-19 crisis. So what are some of the things you guys are doing, what are some of the things that have changed?

Ben: Sure. Craig maybe I’ll take this from a couple of angles, the first being the response around moving to a remote environment, resiliency and from a client perspective, and then maybe shift to the employee perspective. So as you mentioned, the days have kind of all started to blend together, but if we rewind the clock and think about kind of a late February timeframe, we had our Elite Advisor Summit on the horizon for early March.

Ben: I remember specifically getting called into Jim Crowley’s office, our CEO, and sitting down to talk to him about that, and we decided that we were going to cancel the conference and got a little bit of pushback from the industry, thought we might’ve been being a little bit too conservative, but as we kind of look back at what happened, it was actually very opportunistic for us to take those conservative measures. And that’s really what we did early. We started planning for resiliency and the ability to start moving people to a work from home environment on a rotating basis. That went from planning to execution in a matter of days. So, by six weeks ago, we moved everybody that we could to a work from home type of environment. And globally, 99% of our workforce is work from home. We really focused on keeping our employees safe, getting them in an environment where they could remote work into our systems and then take care of our clients. And the good news is we were really able to do so without missing a beat. It was very smooth. It was done in a period of historic volatility in volumes. The team was adjusting to this new normal of having their kids at home and working from home, but with extraordinarily significant volumes. And what we’ve gotten in terms of feedback from our clients is our clients could hardly tell that, we were in a remote environment. The service team was very responsive. The technology has been very resilient and is working as designed. And that’s all kind of a part of our planning exercise and the way that we consistently test our business continuity and resiliency.

Ben: So, knock on wood, it’s gone really well and we’ve learned a lot from it. We were able to move to a remote environment very quickly. So shifting gears to the employee front, obviously we’re a company with roughly about 50,000 employees at BNY Mellon, and this is a significant time and point in our existence. So the company has been very supportive of employees. Most recently, Todd Gibbons, our, CEO, announced that there’s not going to be any layoffs in the current year. It’s really about keeping our employees at the forefront, so that they can support our clients and it’s just the right thing to do. The firm has stepped up with that commitment of no layoffs. The firm is also supporting our communities, like many other big companies have committed resources to the local healthcare environment as well as supporting a variety of, philanthropic efforts. There’s a company match up to $10,000 for qualified charities, so if employees give up to $10,000, the company will match it, etc.

Ben: There’s been a number of work from home employee resources. We’ve got a very robust employee assistance program focusing on everything from mental wellbeing to manager resources to help managers, cope with working with employees in a remote working environment. And then finally just tools and resources. So even the concept of using laptops to easily get online at home, certain employees, traders, customer service folks, they need multiple screens and multiple monitors. The firm has stepped up with an expense reimbursement bereavement program to be able to support some of that for our employees. So in total, bringing both those things together, the client side and the employee side we’re just tremendously proud of our team for stepping up and serving our clients, and proud of our company and in leadership team in the way that they have supported employees.

Craig: That’s great to hear. You know, we’re hearing a lot of great companies that are like you said, stepping up and doing the right thing and looking to make it easy as possible for their employees to be productive in sometimes, difficult environments. People have little kids at home and when they don’t have home offices, it’s hard to carve out that time or that space where it’s quiet. I’ve seen some people going into their kids’ closets, like walk in closets to have calls and try to find a quiet space in the house.

Ben: Yeah. Occasionally a visitor will appear on a video conference or you may hear a dog bark, but people seem to be, rolling with it pretty well.

Craig: Oh yeah. I think people also are learning that a lot of jobs that they said can’t work from home, really can work from home and in some cases be as productive or more productive.

Ben: Yeah. I would anticipate that our, and you hear this in a lot of forums, but our reality has changed and I think that this has allowed companies to really not only test business resiliency, but enact and enforce. And I think that we’re going to see changes in the industry and in the way that advisors work with their clients, and for firms like ours, you’d mentioned conferences earlier, I think that we’re going to see a difference in the amount of in-person conferences, that we see. I mean, people want to spend time with individuals, but I do think we’re forever changed.

Craig:  It’ll be interesting. I kind of feel that people have a short memory and that eventually it will go back to some kind of normal, but then also people get used to the new normal, so they’ll just be used to doing more virtual, more webinars and less travel and like it. You’ll say, “why am I traveling so much? My business is doing just as well without going to conferences”. So I think you’re right that it will change. Have you seen any surprising data so far, I’m sure you see higher trading volumes, but anything in that area you can share?

Ben: I mentioned that we were dealing with a highly volatile market when we were moving to work from home and, across the board of Pershing, we hit daily records kind of day after day to 3x, the amount of daily trading volume than we’ve ever seen historic levels. And like I said, our technology really supported that well, I would say in terms of anything surprising from that data, I don’t know if it’s surprising, but I think it is good to see. In the RIA custody business, we’ve got about 700 clients on our platform, and if we looked at the February 28th to March 31 asset allocation change, we saw very little overall change. We saw tremendous volumes, a significant amount of rebalancing and maybe tax loss harvesting and some of those other strategic moves. But in terms of overall asset allocation, slight raise in cash, slight draw down in equities, but on the margins, everything else almost remained exactly the same in terms of market exposure, which infers to us that our longterm investors, it’s not a trading business. And they’re keeping investors engaged in their longer term financial plan, and not making knee jerk reactions to the market panic.

Craig:  All those are good, exactly what should have been happening, exactly the way it should have worked. It’s good to see that it’s working that way because you’d probably be surprised if there were major swings. That’s really not the way the business is supposed to be functioning.

Ben: That’s right.

New Vision for the RIA Business

Craig:  Thanks for sharing that. I want to talk more about your new role taking over for the great Mark Tibergien. How do you think your vision of the RIA business will change once you take over?

Ben: So I had the great opportunity to work alongside Mark for his entire career here. I started at Pershing a year before Mark joined in, actually even got the benefit of working with him in advance of that when he was a consultant that Moss Adams and I was a business development officer in Metro New York City and he would be calling on clients and then he would send the leads to me. And I thought, man, I’ve created this great center of influence and ability for this top notch consultant to give me all of his best client leads and then fast forward a month later, we hired him as the CEO and I understand now why he was giving me the leads, but, I’ve had a great opportunity to work with him and we really shaped the business under his leadership over the last decade around being very focused on a specific optimal client profile that was a growth minded professionally managed firm that serves clients with complex financial lives.

Ben: And that served us really, really well. So when Mark came in, he really helped us define that and separate what we did here at Pershing versus the major retail providers. All of those businesses looked very similar, they were direct to retail, they were very focused on massive affluent investors. And we had a different set of capabilities. We had a vast and deep set of capabilities, brought forward by Pershing and BNY Mellon that we could bring to the marketplace, and really serve this segment that needed a more robust and business to business oriented type of platform. And we’ve done that really well and we’ve grown it significantly from $50 billion up over $800 billion, under Mark’s leadership.

Strategic Move Down Market

Ben: So to get back to your question around what we might do a little bit differently, I think the first thing is we’re going to keep doing what we’re doing extraordinarily well, which is serving that segment of the marketplace, of growth minded, professionally managed firms. We’ve become known for it and we’re absolutely going to continue to do that. We’re doubling down on our investment in the RIA business in order to support that. From there you are going to see us expand our addressable market slightly. So, now that we have scale, now that we’ve got a strong foundation and those 700 firms on our platform with over $800 billion in assets, that allows us to really build upon that success that we’ve had and expand. You’re going to see us come down market a little bit. There’s obviously a significant amount of disruption in the marketplace. Pre-COVID, around M&A happening at a variety of the custodial providers. In the past, you might’ve heard me say that our minimum was $250 million of assets under management. Well, we’ve moved down, it’s $100 million, so if you’re an SEC registered investment advisor, and you’re growing and you are an enduring business, you meet the optimal client profile of our advisor solutions business here at Pershing. So that’s an important shift.

Ben: Other than that, we’re really continuing to invest in all of the capabilities that got us here, which is high touch client service, the ability to offer our consulting and practice management resources, the technology platform. We’re investing significantly in continued API connectivity and the ability to deeply integrate with FinTechs. You know, not a tremendous shift, just kind of shifting the areas where we see opportunity.

Craig:  Indeed. So let me pick this apart a little bit if I can. So big news, dropping your minimums from 250 to 100. That’s putting a lot of thousands of additional firms into play that weren’t available to you in the past or you weren’t available to them in the past.

Ben: That’s correct. We do measure that in the thousands. Yes.

Craig:  Yep. I don’t have the data in front of me, but it’s in thousands. So what spurred the decision to move downmarket? Was it that you felt your market share grown enough in the over 250 part? I imagine you would see some revenue opportunity in that 100 to 250 space?

Ben: Yeah, Craig, a couple of reasons. The first of which is, as I mentioned, we do have scale in our business and that was really important for us to be able to operate in a highly profitable type of environment in order to, continue to build out our custody business. So we have that scale and we’re able to capitalize on it now. As we know, there’s disruption in the marketplace and with that disruption we see opportunity, the fiduciary model is winning. As a firm, we want to ensure that we’re serving advisory firms and practices across that continuum. So from our clearing business that focuses on IBDs and independent contracting type of firms, we absolutely have an option for emerging RIAs and emerging advisors in that space. Once they crest over $100 million and become a SEC registered RIA, we really felt that the $100 million to $300 million was an area in which we consistently were seeing opportunity. We knew that these types of entities really want a choice. We knew that choice was diminishing in the marketplace, and we have a really robust platform that is fiduciary-oriented and able to serve them in a way that doesn’t compete with their business. And it’s really just about democratizing that and getting that out for that segment of the marketplace to begin to utilize. And then finally, it’s to encourage the fact that we know that those businesses are gonna eventually be billion dollar shops. We’ve got to align with them when they are that size so that we’re their partner now. So we can help them grow. And we know that many of them are gonna thrive, and be those larger firms of the future.

Craig:  Get them while they’re minnows before they become whales.

Ben: Absolutely.

High Touch vs. the Call Center Approach

Craig:  Now, one of the things you mentioned, it’s actually a bit of a dichotomy that your business can scale now, which is fantastic. You don’t want to get out ahead of your skis and try to grab market share when you don’t have the capability to support it. But you mentioned some of your strengths are high touch client service. So if you’re expanding and scaling, it’s by definition the amount of touch that should go down, or do you have a way to mitigate that?

Ben: We’re really focused on that. It’s a great point, and we absolutely see our competitors moving in more of a retail-minded call center-type of infrastructure. We hear many cases, the concept that the service experience is being re-imagined and it seems as though it’s moving towards more of a self service, lower touch environment and less high touch. One thing that we absolutely know is that RIAs absolutely want access to dedicated high touch client service. So that’s a big part of our service infrastructure and a differentiator for us. Now, we are investing in digital tools, and this environment that we’re in right now is only increasing that investment. So we’re seeing as a result of the existing COVID environment, our training class for opening accounts via e-signature, and the ability to interface with us digitally from a handful of firms on a weekly basis to upwards of even 100 individuals logging into those trainings to learn about digital tools, so that’s great to see. We want everybody to utilize those digital tools, but we do also believe that there’s this careful balance between a curated high touch experience versus a call center type of approach. And Pershing as a firm that has historically been a dominant provider that serves financial intermediaries, we are architected and our environment is designed extraordinarily well to interface with financial services organizations. So that’s what we’re leveraging and it’s a careful balance but absolutely airs on the side of a smaller ratio of our client service individuals to clients on our platform.

Craig:  I wanted to go off script a second here. I had an idea, something that you just mentioned, with your technology. Something I saw at the conference last year was a chat bot where advisors could ask questions and it would take them right to the point in the system that you needed to go. So they would type, Hey, I’ve got a client who lost their debit card, and boom up would come the right form on the right page. So you have to go search through NetX 360 to find what you wanted. Would that type of technology be coming out soon? I know it was in the proof of concept phase last year.

Investing in Digitizing Custody

Ben: Yeah, that’s just one example of the type of investment that we’re making in terms of really digitizing custody, moving from an environment instead of just electronically signing forms, getting rid of forms all together. Absolutely utilizing, robotics in our business, in many ways behind the scenes so investors and advisors don’t notice it, that type of investment. And we’ve actually reprioritized our investment in technology this year based on the existing environment that we’re in in terms of the pandemic to ensure that top of the list are the digital tools and resources so that firms can operate more efficiently with us and in turn, we operate more efficiently.

Craig:  Hmm. I would agree with that. One of the things you mentioned was integrations and APIs. Do you have anything you can talk about specifically around that for other vendors that are partnering with you or be able to integrate your custody and other solutions into other FinTech firms that would be interesting to people?

Ben: The strategy in our philosophy is to be intelligently open. So by that, I mean that we don’t aspire to just have integrations with every FinTech firm in the universe. We want to go deeper with a smaller subset of the firms that are more readily used across our client base. So that’s how we prioritize our API development, and there are a number of those firms that we meet with on a very regular basis. We’ve got a technology advisory board, and we’ve also got a technology partner council where we work with these firms in order to ensure that we are at any given point engaging with the firms that have the resources on their side. And we have aspirational goals on our roadmap that we want to get to in terms of, bi-directional data file sharing and and API connectivity with a variety of these vendors. So intelligently open is our strategy. And, we also see the opportunity to create in the future more of an open sandbox for development and testing so that we can be known as one of the firms that has the most innovative lean towards FinTechs in the marketplace. That’s something that we’re working on behind the scenes. But we’re going to be careful, we’re going to put the resources stacked against the most viable firms because we think that it’s better to have a deeper and broader connectivity and use cases back and forth rather than just a very thin surface layer on top.

Craig:  You don’t want to be a mile wide and an inch deep.

Ben: That’s right.

Are Monthly Subscriptions the Next Big Thing?

Craig:  Interesting. I’m looking at your press release from last month. Can we talk a bit about your changes in pricing?

Ben: Sure.

Craig:  So the monthly subscription price, that’s been big in the industry, a lot of news and a lot of talk about how monthly subscription pricing is going to become the next big thing. Do you see a lot of your existing RIA clients taking you up on that or is it just something you wanted to have to say we have it and you don’t really expect a lot of a lot of firms to be testing those waters?

Ben: We’ve actually seen a fair amount of interest in it and I think that comes from the fact that we saw that the existing custodial kind of economic model environment for pricing was ripe for disruption. So if you think about it, the way that this business has been priced was really driven off of a retail discount brokerage type of model because that’s how this segment of the marketplace was born. And again, we’ve got tremendous respect for our competitors and many of which were pioneers, launching the RIA custody movement. But it really came from a direct to retail pricing schematic, where investors bore the economic weight of the custodial market. And we thought that it wasn’t necessarily in alignment with the way that the investor of the future was going to be consuming products and services. So that’s what prompted us to move towards more of a subscription based model.

Ben: If we think about the zero transaction fee model on equities and ETFs, that was very product specific, and it was eliminating one fee, which was an equity ticket and moving that fee into more of an opaque economic model of capturing that fee in the cash or money market fund, or single bank sweep, environment. We saw that and we thought, geez, that doesn’t seem like it’s as aligned with the fiduciary model as the future would suggest that investors want. So that prompted us to say, let’s create an environment where an investor can pay a flat dollar amount, a monthly fee, as low as $25, and have access to whole of market in terms of the products and solutions. So equities, ETFs, fixed income, mutual funds, including the lowest fee or no fee type of product, which we know continues to grow and there’s investor demand for it. The existing environment, with product fees, really subsidizing the custodian to be able to provide a platform, we just don’t see that lasting. There’s not longevity in that in the marketplace. So that took us to subscription, which does allow for this access to a variety of different, products, including a hybrid cash offering, which allows for a greater yield once the investor has more cash balances on the platform.

Ben: Many advisors have been missing the opportunity to manage cash as a part of the overall allocation because no custodian has gotten innovative around it because it was going to cannibalize their revenue stream. So this is something new. We’re starting to get quite an interest in it. It’s starting with the types of advisors that utilize some of the lower fee products in the marketplace, the dimensional funds and Vanguard funds, etc, where they have historically not been as coveted in terms of their profitability to custodians because of that product usage, which just doesn’t make sense. But we think that there’s applicability for many use cases, and we’re starting to see a pretty good interest in incoming inbound inquiry on it.

Craig:  Giving more options to RIAs is only going to be a good thing cause you don’t know which ones are going to be accessing these different pricing models and you don’t want to be limiting them on how they can and can’t run their business.

Ben: That’s right.

Craig:  And I see, I see subscription pricing as becoming a huge part of advisors’ pricing because people are used to it whether it’s Netflix or Spotify, whatever tools or services it’s for, they’re used to that subscription pricing and eventually they’re going to realize that they’re paying more, but not necessarily getting more service, and that a subscription model makes more sense.

Ben: Right. And look at the existing environment. I mean the advisors are working pretty hard right now. They’re working harder than they ever have in terms of communicating to their clients and navigating these markets in these uncertain times and their fees are going to be down because their assets under management are going to be down, so they have that inherent conflict as well. What could really align well is if they went to a subscription model and the custodian was on a subscription model and advisors could wrap that. It could be really interesting for fiduciary advisors to be aligned with their clients.

Mergers & Acquisitions

Craig:  And you think that’s what more of them would want. They want to be aligned with their clients. They don’t want the opposite. So shifting gears, but staying in the same area, what are your thoughts on the M&A in the space? So there has not been a lot because after, of course we had a huge one last year with Schwab buying TD, and then Morgan Stanley buying E*TRADE. Any comments on that? Do you see this continuing? Will there be more M&A?

Ben: Well, I would say that all of the M&A that we’ve seen, both in the existing RIA to RIA as well as on the custodial platform side has been very much oriented around the wealth management space, not the custodial space. So what’s happening is the one fee that has been very steady over the last 10 years has been the investment advisors fee or the wealth management fee has maintained a 75 to 80 basis point type of model. And that’s very coveted. So we saw Goldman Sachs buy United Capital and forming a national footprint RIA. We’ve seen obviously the discount providers be very disrupted. And in one case two discount providers coming together that was really driven by the retail investor. It wasn’t, okay, we’re going to align our RIA custody units, that came after the fact. And even the same is true by a wirehouse kind of buying a discount broker. It was for retail clients or the ability to leverage 10b5-1 resources, etc. So I think what that implies to us is that the fee pool that is coveted is the direct to client fee pool and many of those discount providers want to be wealth management providers and this is their entree into it. And we’re going to continue to see, even though I would expect there to be a slow down just due to the current environment, I think there’ll be a slow down, depressed valuations for a bit in terms of what we’re seeing in the M&A environment. But I think it’s going to come back pretty significantly in terms of additional, industry consolidation in the space, I really don’t see it slowing down.

Craig:  There’s more new providers coming out. This isn’t a space where there’s been a lot of influx of new providers. It’s not easy to start a custodian.

Ben: It’s very challenging, very challenging to start a custodian and you can’t just get 75% of the way there. This is a highly detail minutiae oriented business and you know, you could operate well for 10 years without a glitch and then on the most volatile day that the market’s seen since the ’30s, if you can’t do what you have to do as a custodian, which is transact, and meet your client needs, and hold assets safely and securely, then you’re out of business. So it’s a tough market to enter.

Craig:  It is. The most recent firm I know of that got in was Altruist that started last year. But besides that, there really aren’t that many new custodians coming in.

Ben: Agreed.

Craig:  But there are firms trying to move into different spaces. Like there are larger custodians that maybe serve broker dealers trying to get into the RIA space, and RIAs trying to get into the broker dealer space. So they are moving into each other’s areas.

Ben: There’s no question about that.

Craig:  So I think we’ve got everything covered. I really appreciate your time here, Ben. I know you’ve got a lot of things going on, so thanks for carving out some time in your schedule to talk to me and sharing all this with our audience.

Ben: Great Craig. Well, I really appreciate it and there’s a tremendous amount of optimism right now at BNY Mellon | Pershing as we think about the future, and there’s disruption in the marketplace but with disruption comes opportunity and we look forward to continuing to invest in the RIA custody business, and we see coming out of this very strongly on the other side. So thanks for having me.

Craig:  You are welcome. All good stuff. Thanks so much, Ben.