Leave it to the man who came up with the Model T to provide some sound advice for our profession.

Henry Ford once said, “Coming together is a beginning. Staying together is progress. And working together is success.”

Believe it or not, those words are perfectly tailored for a situation that financial advisors currently face.

Our work depends on a crucial partnership. We’re teamed up with financial custodians. Any lasting collaboration must be mutually beneficial to both parties. And for many decades, this one was.

But things have undergone a significant change in recent years. For a long time, folks on our side of the partnership pressured custodians to lower the fees charged to both our firms and clients – things like trading costs on mutual funds and equities, and management expenses on internal ETF costs. 

We eventually got those costs down to zero. New technology played a big role in drastically reducing, and in some cases eliminating, those expenses. But remember, while we were right to push for those changes, eliminating these charges dried up a significant revenue stream for our custodian partners. They’re in business to make a profit, just like we are. While custodians are doing well financially, it’s also important to their bottom line to find a suitable replacement for that lost revenue. Because the wrong substitute could lead to misalignment. 

For instance, custodians could impose an edict that financial advisors must hold specific money market funds or maintain a certain amount of assets at the custodian to continue receiving their services. Such requirements might not be in the best interest of your firm or your clients. And that would be bad for everyone.

This is where Henry Ford’s words come into play: “Staying together is progress.” Financial advisors and custodians are still together, which is good for both sides. Now, we’ve got to help our partners successfully navigate this challenging transition period. 

The secret to any successful partnership—be it marriage, artistic collaboration, or business—is give and take. We financial advisors have done a lot of taking lately. The reality is, it’s now our turn to give a little. By doing so, we will help our partners make decisions that are in our clients’ best interest.

I have an idea of how the near future may look. It’s a little different from what we know today. But remember, we’ve got to give a little, right?

I believe custodians will soon start charging custodial fees. Remember, technology is impacting their business just as it is ours. As they innovate and develop new services, expect to see them charge a flat fee for those services. That will help offset the revenue losses we discussed earlier.

I see this as a good thing for everyone. Because in order to have a truly fair and equitable partnership that focuses on the client (as it should be), both partners need to do well. There has to be a balance, and that means each partner must be prospering. So, if that means we advisors must pay new fees to receive a proper new alignment, one that’s focused on delivering better value and cost-conscious management, then so be it.   Because with the right balance, custodians can use those new fees to invest in research and development and innovation since larger custodians are better positioned than advisors to make major technological advances. 

Remember, our side has held out our hand and asked for a lot from custodians; now it’s their turn to ask for something from us. Understanding and accepting the coming new fee structures will go a long way in making sure our vitally important partnership not only remains intact but grows stronger than ever. And that is essential to our clients’ bottom line.

So don’t be afraid or annoyed by the coming changes. They will mean better service to the people whose wealth you manage, and that improved service will help keep them in your book of business for many years to come.

And always keep in mind Henry’s words: “Working together is success.”