Revamped custodian eyes smaller RIAs under ex-Hightower executive

Custodial giants facing increased competition from startups in recent years have a newly rebranded and reorganized rival for business among registered investment advisory firms.

Equity Advisor Solutions and ETC Brokerage — two companies owned by Equity Trust Company, a Westlake, Ohio-based custodian of self-directed individual retirement accounts — merged together under the name of Innovayte with ex-Hightower Chief Solutions Officer Cathereine "Cat" Davies as the CEO, the firms said Oct. 19. As part of ramping up a "sleepy business" of $3.4 billion in primarily alternative investment assets under custody, Innovayte is dropping an external vendor, Axos Advisor Services, to do its own clearing, Davies said.

Innovayte

Innovayte will be targeting RIAs with between $100 million to $800 million in assets under management as the company focuses on the "entrepreneurial spirit of advisors and the next generation" in the industry, Davies said in an interview. Giant incumbents Charles Schwab, Fidelity Investments and BNY Mellon's Pershing display the "gift and the curse of being big," according to Davies, who was a vice president at Fidelity and a senior relationship manager at Schwab prior to her time at Hightower, she said. Those firms have the most resources, but they also must adapt any new technology to existing legacy platforms that are decades old.

"It changes the entire backbone of the economics when you don't have built-in expense, which makes us nimble," Davies said. "We're not trying to alter systems, we're starting fresh. We're going to really care about who we work with. We hope it's for the long term. It would be great if we doubled our business in the next couple of years."

Asked for comment on Innovayte's exit from Axos, representatives for the firm said no statements were available by Financial Planning's deadline. Representatives for Hightower didn't respond to a request for comment on Davies' departure from the firm.

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Innovayte's predecessor firms had been competing with the established players for roughly a decade before their merger, and rivals to the giants like Axos, SEI and self-clearing and custodying brokerage firms like LPL Financial, Raymond James and RBC have had a head start. Other startups like Altruist have attracted thousands of independent financial advisors as well. Still, about one in four RIAs surveyed by Cerulli Associates earlier this year said they were considering adding another custodial option to their mix of vendors.

"I think there is some open bandwidth in the market for newer competitors," said Stephen Caruso, a senior analyst in Cerulli's wealth management practice. The advisory practices "don't look to make a one-to-one change," he added. "The RIAs that we talked to are more comfortable adding plus one or plus two."

He called Innovayte's targeting of the growing firms in the $100 million to $800 million range "a great market opportunity" in the wake of the consolidation of TD Ameritrade into Schwab.

For her part, Davies recalled the first part of her 25-year career in the industry, when a firm with $250 million in AUM was considered one of the largest on Schwab's platform. With some RIAs reaching into the tens of billions or hundreds of billions today, the difference "shows you the evolution and growth of the RIA market" over that span, she said.

"It doesn't mean that the large advisors aren't critical and important, because we do need an answer for succession planning," Davies said. "The majority of advisors out there are small. … We want to be the answer for that advisor."