Fidelity ends custody for sub-$100 million RIAs, with June 2027 exit

Fidelity has ended custody for advisory firms below $100 million in assets and is offering no way to stay, this publication reported on Oct. 2, when the company confirmed the letters and gave affected clients until June 2027 to move, with no fee option to remain. RIABiz, tipped to the story by Nexus Strategy, describes short notes on Fidelity stationery reaching what it characterizes as presumably hundreds or thousands of small, state-registered firms.

Fidelity's own account of why runs two sentences: the custodian recently established a $100 million asset minimum for new advisory firms joining its platform, a spokeswoman told RIABiz by email, and is extending that criterion to existing custody clients "for consistency." Tim Welsh, whose firm Nexus Strategy prepared a white paper on the withdrawal, told RIABiz the letter said nothing else of substance—no mention of cost, service, or what the affected firms had contributed over the years, only a line about reviewing client relationships to ensure they "align with our long-term strategy."

The missing off-ramp is the change from Fidelity's earlier minimum increases, which came with a way to stay: RIABiz's account points to a $10,000 annual custody fee that attached to a wider swath of small RIAs when past thresholds moved. Michael Kitces, speaking in a Zoom interview tied to this week's XY Planning Network event, said this time the custodian "just gave a hard 'no,'" which he called "a bizarre decision to cut off the next generation of advisors." XYPN is a membership group for mostly small RIAs, and some of its member firms hold assets at Fidelity.

Kitces's larger claim is that small-firm custody has never paid well: "I've been saying for years, the business model is broken," he told RIABiz, and Welsh agreed that the model works much better at $1 billion in assets than it does below $100 million, which is the argument the letter declines to make out loud. The implication, drawn from the source's own economics rather than anything Fidelity wrote, is that the low end of the platform generates revenue the custodian has decided no longer justifies the service.

Alex Chalekian, founder and chief executive of Lake Ave. Financial and one of the advisors who broke the story by posting about the letters on LinkedIn, reached the opposite conclusion, telling RIABiz, "I have a feeling this decision by Fidelity is going to backfire." The case for that reading is a pipeline argument: the firms being sent away are the industry's smallest, which makes them first-in-line prospects for whichever custodian signs them, and Fidelity is choosing to be somewhere else while they grow. The case against is the arithmetic Kitces and Welsh both describe, in which a small book pays less than a large one regardless of how long the relationship has run.

For the advisor holding the letter, the argument over Fidelity's judgment is academic, because a custody relationship is the plumbing a practice runs on, and the Oct. 2 reporting found that the alternatives advisors have named so far carry conditions of their own. The coverage does not say what support Fidelity intends to give the firms it is removing, which suggests the transition work, and the cost of it, lands on the practice rather than on the platform asking it to leave.

The June 2027 date is the operative detail for planning purposes, because it converts an indefinite custody arrangement into a project with an end date; what the deadline does not settle is where those firms go. The same scale economics that made Fidelity a poor fit for a book well under the threshold apply at other custodians as well, and the smallest practices carry the least negotiating leverage on fee schedules and service terms wherever they land.

Custody stopped being a neutral utility some time ago, and Fidelity's letter is a platform stating plainly which clients it wants: the line it has drawn is $100 million. One thread RIABiz raises without resolving is a Fidelity deal involving Savvy in the days before its report, which the outlet's headline suggests may soften any blow; the account does not explain what the deal was or how it would help the departing firms.

What the next few years will test is Kitces's pipeline argument: every firm that eventually crosses $100 million was once well below it, and the custodian that signs those firms early is buying a future book at a discount. Fidelity has decided it would rather not pay for that option, and whether the call was right shows up later, in the rosters of firms that grow into nine-figure books and in the names of the platforms that took them at a fraction of that.

Fidelity's number is $100 million; for the practices under it, the immediate task is finding out whose number is lower, and on what terms.