Schwab's no-fee custody pledge is pulling billions from rivals as RIAs count the cost
A Texas registered investment adviser moved roughly half a billion dollars of client money from Fidelity Investments to Charles Schwab to avoid a custody fee that could have reached about $200,000 a year, its chief executive said. Natalie Pine, who runs Briaud Financial Advisors in College Station, said Fidelity had done "a great job for us for 20 years", but the potential annual charge — either $250 per account or 0.05% of account assets, passed straight to clients — was too high a cost to carry. Schwab has pledged never to collect a custody fee.
The switch was not costless in other ways. Pine's team took on new work to help clients earn more on the liquid part of their portfolios by steering around Schwab's cash sweeps, the arrangement under which uninvested client cash is held and lent out by the custodian. For Pine, a former chair of the National Association of Personal Financial Advisors, the episode showed that custody is a business rather than a charitable endeavour: "Custodians have to get paid," she said, adding that there is "not a right or a wrong" — advisers must pick what suits their clients and their firm.
The difficulty is that advisers cannot easily compare what they are paying. Custodians negotiate privately with advisory firms, and the industry's three largest — Schwab, Fidelity and BNY Pershing — also earn from third-party payments by fund companies and from cash management, sweep accounts and margin lending. Some firms do publish platform charges: SEI starts at 0.10% of assets, Betterment Advisor Services charges 0.20% and Altruist a flat 0.01% a month per household. But negotiated rates can differ, and the other revenue streams rarely appear on an invoice.
That opacity has prompted calls for custodians to disclose custody fees so pricing becomes transparent and comparable. Michael Kitces, head of planning strategy at Focus Partners Advisor Solutions, and Adam Van Deusen have proposed that custodians charge a percentage of assets and rebate revenue above that rate, with illustrative ceilings of 0.05% to 0.25%. Using Schwab's public disclosures, they calculated the firm's revenue per asset had fallen to 0.092% in 2024 from 0.155% in 2022. Kitces said advisers are dismantling the old revenue streams, which is why "a new business model for custody is needed".
The US Securities and Exchange Commission has not commented on the question, but its examinations division has said it will keep prioritising whether advisers' policies address fee-related conflicts of interest, particularly those arising from account and product compensation structures. Daniel Yerger, president of Colorado-based MY Wealth Planners, said it is "incumbent upon us to be more demanding of our custodians" about their revenue, and that most RIAs probably fall short. Bob Veres, who writes the Inside Information newsletter, put the problem plainly: advisers can judge custodians by features, but not by price.
