MAY 2021


Register with PP

Newsletter, Jobs & Event Alerts


Are custody services an alternative to platforms? An interview with Pershing’s Matthew Lonsdale

16 January 2020

Rob Kingsbury spoke with Matthew Lonsdale, Relationship Manager at BNY Mellon’s Pershing, about how using a custodian can be more cost-effective for financial planning firms and wealth managers than using multiple platforms, the rise of digitalisation in financial services and how it can be used to create value in financial planning businesses.

RK: How do you see the market changing and what do you offer financial planning firms?

ML: What we’re seeing in financial advice is that the owners of top quality planning firms, particularly those looking to retire, want to create businesses with a capital value that has a central infrastructure, including areas like paraplanning and centralised investment propositions.

At the same time, we see an industry increasingly being populated with young professionals who are ready to effect change in their businesses and to employ technology to do so.

This would suggest the use of technology and the digitalisation of operations and services will become far more significant over the next few years.

Through our services, technology and our long experience in the market helping investment firms achieve these ends, we can help financial planning firms create operational efficiencies, reduce costs, create capital value and better serve their clients – all important things for financial planning. We can do this through our custody services and our suite of software services.

Our main challenge is to explain our model to financial planning firms that have grown up with platforms. We’re not on their radar – yet.

RK: How does your proposition compare with platforms for financial planning firms?

ML: First, it is important to say that we are not a platform. We provide fully disclosed (down to investor-level) custody. This means we not only look after the assets, we are able to identify which of your clients has assets and how much they have. Then we provide the pieces of infrastructure to allow financial planning firms to do the things they need to do on a daily basis, be that trades execution on the markets, access to the entire funds universe, access to tax wrappers, a portfolio management system, and so on.

This is important for the independence of financial planning firms. One of the differences between a custodian and a platform, and this has been well documented, is that most platforms have an interest in the distribution of funds and various other investments on that platform. A custodian has no interest in the distribution. We provide an independent infrastructure and safe custody of the assets.

Also financial planning firms need to look at the costs of using platforms. If they are using three to five platforms, they have to ask whether that is good value and whether they could use all their client assets to leverage a better fee with one provider. They may have three or four members of staff managing those platforms. If you consolidate into one place, you gain efficiencies. It’s a win-win, as it enables businesses to free up staff time to help grow the business and to get better pricing for their clients.

What Pershing provides for financial planning firms is a stable foundation built on, tried and tested technology, alongside a suite of integrated solutions with a range of additional functionality, but also an open architecture structure, so firms can link through to their back-office provider and any favoured third-party solutions they want to use, such as a CRM system.

That flexibility is important. We want people to see they can use our custody service instead of two to three platforms and, as they evolve their business and services, to see how they can make use of our suite of offerings, to better streamline their operations. Our goal is to provide an ecosystem that gives firms what they want for their businesses.

RK: Will we see more digitalisation in the industry?

ML: Digitalisation of financial services is a really interesting area and there is a lot of excitement around what it could mean in the future.  But it is also a big challenge for firms because what is often overlooked is the incremental steps needed to get to that future point.

The industry has the potential through digitalisation to improve efficiency, reduce costs and provide a better service to end clients but it needs to do so in a steady and structured fashion.

There are two key reasons for employing digital. First, is that the cost of doing business is going up. Second is that transparency is making people question value for money which ultimately will lead to downward pressure on fees. All of this is squeezing advice firms’ margins.

How you combat that is to become more digitally-enabled, so you can do more of what you are doing today at a lower cost but still to a high standard. That’s where the use of investor portals, video chat and portfolio systems that manage money more efficiently, as well as other ways to interact with clients, come in.

While there is a lot of talk around robo advice and guidance, I think the implementation of digital technology in advice will take far more measured and sensible approach than is often pictured.

There is another good reason for this in that it allows people to consider the return on their digital investment – at all levels, from individual advice firms through to robo-advice propositions. When people start to see it is working, then they will buy in.

RK: How can financial planning firms start to better use digital in their businesses?

ML: One way is to step out of the business look back at it and say, ‘would I invest in this business?’

That exercise makes you look at things like whether the business will be sustainable for a period of 5-10 years. The next step is to look at where you can invest to have the biggest impact to get to develop the business and take it to the next level.

An efficiently run firm can attract better quality staff. And for those looking to sell a business, it can mean easier due diligence for potential buyers and an efficient firm can often obtain a greater value.

But there are challenges to moving towards greater technological efficiency. First, is the availability of capital to invest in the business and aligning the investment resource for the greatest impact. Second, as margins are squeezed, businesses need more clients to maintain revenue. To invest in technology, there is often a need to increase client numbers.

These are real challenges that affect people’s views about where to invest. It can be difficult when you are a small business focussed on your clients to think about implementing a five-year technology project. This is where it can pay to look at what functionality is in the market and how it can be easily brought in to work for you.

RK: To what extent can robo-advice be used by financial planning/wealth management firms?

(Continued on next page)

Professional Paraplanner