Raymond James Financial Services Inc.'s four-month-old independent advisers division, officially rolled out last week, is going toe-to-toe with giants such as Fidelity and Schwab in a market that is close to saturated.
Michael J. Di Girolamo, senior vice president and head of advisory services, said the division is offering financial planning, financial planning software, in-house research, trust services, custody services, and clearing services to fee-only advisers. Raymond James Financial Services is the independent broker-dealer subsidiary of the St. Petersburg, Fla.-based holding company Raymond James Financial Inc.
M. Anthony Greene, chairman and chief executive officer of Raymond James Financial Services, said that this service, two years in the making (and four months in the piloting), stemmed from a desire to "provide a complete package of opportunities and options for financial advisers, according to how they want to work."
The company also wishes to cash in on the growing fee-based market. "The fee business is driving this industry and will continue to do so," Mr. Greene said.
The division will be in direct competition with San Francisco-based Charles Schwab & Co. and Boston-based Fidelity Investments, which provide custody and clearing services to 6,000 and 1,000 fee-only advisory clients, respectively.
"There's a lot of discontent with some of the current relationships advisers are maintaining with custodians, coming from the perception that these services providers are going directly after the client," Mr. Di Girolamo said. "A lot of financial advisers are not happy with that, so this is a great time to get into the market."
Mr. Di Girolamo did not name names. But a number of independent advisers who work with Schwab have expressed concern that Schwab's acquisition of U.S. Trust Corp. would put Schwab in direct competition with them. At least one of the new division's customers is transferring assets held in custody by Schwab, he said.
Raymond James will target financial advisers with at least $50 million of assets under management. The firm has not yet set a minimum for individual accounts, but it will probably fall within the range of Raymond James' fee-based accounts, from $25,000 to $250,000, Mr. Di Girolamo said.
Competitive features include a choice of platforms, sophisticated proprietary software, and a range of options for reporting performance to the advisers' clients, he said.
Another advantage is that the new division does not market its services directly to the public. Therefore, it will not compete - or appear to compete - with its own advisory clients, Mr. Di Girolamo said.
Raymond James Financial also plans to market its custodial services to the trust departments of community banks, Mr. Di Girolamo said. The trust department would continue to manage assets and Raymond James would provide custody and handle clearing. The company already provides brokerage services in 236 community banks.
The independent broker-dealer has provided custody and clearing services to its own team of series 7 advisers - which now numbers over 4,000 - for 26 years, Mr. Di Girolamo said. But this is the first time it will market the services to advisers who are not licensed or whose series 7 license is not sponsored by Raymond James, he said.
He said that prices would be competitive with those of similar custodians, and that the division would compete on the basis of service, rather than price.
Mr. Di Girolamo said he hopes to serve 20% of the independent advisory market within three to five years. Business, he predicted, will come from several sources: investment advisers who are dissatisfied with other custodians; accounting firms that have a fee-based practice; and brokers who are working with wire houses but are looking to go independent.
Dennis Gallant, a consultant at Boston-based Cerulli Associates Inc., said that obtaining a 20% market share would be difficult. Schwab serves about 70% of the registered investment adviser market, estimated at about 11,000. Fidelity is a distant second, with about 18% of the market, Mr. Gallant said.
"There is a lot of discontent in the industry, but it's still very onerous to move assets from one custodian to another," he said.
And there are no longer significant numbers of new entrants to the registered investment adviser market - maybe a few hundred a year, Mr. Gallant said. Raymond James is most likely to draw business from registered representatives working at wire houses and other brokerage firms who are striking out on their own, he predicted. That is because Raymond James has the culture and feel of a full-service brokerage rather than of discount brokerages such as Schwab, he said.
Also, as Raymond James does not have the practice-building services that Fidelity and Schwab provide but does have a minimum, it would be unlikely to draw business from reps who are switching from commissions to fees, Mr. Gallant said.