- What's at stake: As legacy wealth firms tighten their business models, smaller but growing entrants to clearing and custody like RQD* Clearing could capitalize on the opportunity.
- Supporting data: This summer the Bain Capital Tech Opportunities fund led a minority growth investment of $74 million in RQD.
- Expert quote: "There is an opportunity to find the right blend of economics and say, 'Can we do this at the lowest cost possible?'" — Michael Lanyon, chief revenue officer at RQD* Clearing
Before Fidelity Investments moved to drop smaller RIAs from its custodian business, a newer clearing and custody entrant had already secured capital that could expand its own client base.
But last week's announcement that the second-largest registered investment advisory firm custodian will no longer work with companies that do not place at least $100 million with Fidelity by July 2027 has given an extra boost to New York-based RQD* Clearing and other firms that remain open to RIAs of any size. That followed a minority growth investment
Numbers like that, as well as the RQD's base of roughly 50 clients among U.S. advisory practices through RIAs, brokerages and turnkey asset management platforms, pale in comparison to the reported $4 billion that Vanguard will pay to acquire Altruist by the end of the year.
Comparisons in a competitive field
In the 10th installment of Financial Planning's ongoing series on the fees and business models of industry custodians, the undisclosed size of RQD's asset base and its nonpublic pricing schedules represent another contrast with most of its larger rivals. However, RQD also shares similarities with technology-focused, international-scale firms like Interactive Brokers, rather than with the giant custodians.
And it's "still in what I would describe as our early infancy" in working with RIAs and other U.S. wealth management businesses, according to Michael Lanyon, the chief revenue officer with RQD. He joined the firm in December 2023 after departing his former post as global head of sales with Apex Fintech Solutions' clearing business.
"There is an opportunity to find the right blend of economics and say, 'Can we do this at the lowest cost possible?'" Lanyon said.
He declined to be more specific about a baseline fee level where the firm's negotiations with prospective client advisory practices begin, beyond saying that they start with a "low basis-points formula." RQD's ideal customers tend to come from "modern groups that want to own the customer or advisor experience," through developing their own products and services and being accessible to smaller accounts, with capabilities like direct indexing and long-short strategies traditionally reserved for larger accounts.
The trading technology and other infrastructure outside those RIA services suggest that Interactive Brokers (IBKR) is the "more relevant comparison" to RQD than larger, more established players, according to William Trout, the director of the securities and investments practice with consulting firm Datos Insights, and Gregory O'Gara, a strategic advisor with the firm's wealth management practice. The extent that RQD can provide "relationship-driven service and support for fund distribution" will likely determine its eventual reach with RIAs, they said in an email interview.
"Fifty RIA clients is too small a sample to draw firm conclusions, but the segment being described is real: advisors seeking proprietary fund distribution and long/short capabilities, or those priced out by legacy minimums. The challenge is that IBKR has been serving this segment for two decades and already has significant scale and resources behind it," they said. "Where RQD* could still differentiate against IBKR is in service and support. IBKR remains a self-directed, low-touch platform, even within its advisor business, while Lanyon's background is in relationship-driven, high-touch sales. That points toward an approach built around advisors who want a dedicated point of contact."
How the firm will deploy the Bain capital
On the other hand, Lanyon was talking about "a separate, third line of growth" from the international clearing business that Bain had focused on with its investment, Trout and O'Gara noted.
While it mentioned RIAs, the press release largely focused on RQD's "emergence as the institutional-grade alternative to both legacy clearing platforms and newer brokerage infrastructure providers" for global investment firms seeking access to U.S. markets. In roughly the first eight months of the year, RQD had processed more than 543 ledger transactions and 515 stock trades, while clearing 64.8 million options contracts.
"As capital markets become more global, digital and continuous, RQD* provides the mission-critical infrastructure financial institutions and fintech platforms need to keep pace," Michael Grandfield, a partner with Bain Capital Tech Opportunities, said in a statement. "RQD* has demonstrated that its platform can support sophisticated clients at meaningful scale while maintaining the flexibility and responsiveness financial institutions increasingly demand."
Technically founded in 2019, RQD officially launched two years later following regulatory approvals, according to Lanyon. CEO Michael Sanocki brought his background as a former Securities and Exchange Commission attorney and in-house counsel at International Securities Exchange (ISE) Holdings, the world's largest options exchange, to the leadership of the firm.
"Financial institutions should not have to choose between the technology and agility of a fintech and the market-structure expertise, risk management and infrastructure of an institutional clearing firm," Sanocki said in a statement. "We built RQD* to deliver both, and Bain Capital's investment will help us accelerate that mission while continuing to deliver the flexibility and service our clients expect."
Trying to 'break down the walls' for RIAs
That enlarging presence in international markets like Asia, the Middle East and elsewhere in North America will bring more investment resources to bear for U.S. wealth management firms that work with RQD, Lanyon said. The company's name, which it stylizes with an asterisk, refers to the abbreviation for "required" when filling out forms, speaking to the way that it brings "required financial infrastructure to be able to support" RIAs and other firms, he noted.
The flurry of recent industry news surrounding RIA custody shows that there is "still a lot we can do with modernizing the wealth management landscape and creating value," Lanyon said. So RQD stands ready to forge new agreements with RIAs that are seeking change.
"We want to break down the walls for modern advisors," he said. "It has to make commercial sense for both parties."
