Compared to asset managers, who maintain relationships both with custodian banks and directly with clients, financial advisors' contact is limited exclusively to their clientele. After receiving advice, clients place their orders directly with their custodian bank. However, if a bank employee intervenes, this can quickly become a challenge for the financial advisor. Instead of appreciating the cooperation with external advisors and the turnover they generate, banks often see themselves as unwanted competitors.
Many asset managers also share this experience. Direct contact with clients by bank advisors is not permitted. Usually, the responsible employee at the EAM desk intervenes immediately to resolve any conflicts that arise. For banks, it is usually more economical to have customers looked after by external administrators than by their own staff.
Financial advisors, on the other hand, do not have a direct contractual relationship with the custodian bank. The bank is often not even aware that a client is being looked after by a financial advisor. If this is the case, it often regards the advisor as competition. The larger the client, the higher the risk that the bank will try to outdo the financial advisor. Choosing the right custodian bank is therefore crucial for financial advisors.
This conflict of interest could be avoided if banks were to bring together clients who are looked after by financial advisors in special teams, similar to an EAM desk. This would not only strengthen the trust of financial advisors, but would also lead to them preferring to bring their clients to this bank.
It is advisable for every larger custodian bank to provide a dedicated contact person for financial advisors who can address their specific needs and avoid conflicts of interest. To support the consolidation of such business relationships, innovative banks offer so-called finder fees, which pay out a certain percentage of the income generated over the first few years in order to attract new clients.
We invite you to tell us about your personal experiences as a financial advisor in dealing with custodian banks. Our aim is to collect a wide range of opinions and report on them in our next magazine.