Fidelity tells sub-$100 million RIAs to leave, with no fee option to stay

Fidelity, the Boston-based custodian ranked second in RIA custody, has told advisory firms holding less than $100 million in assets to leave in a short letter on Fidelity stationery. By RIABiz's estimate, the recipients number "presumably hundreds or thousands" of financial advisors, most of them likely small, state-registered practices.

Michael Kitces, speaking to RIABiz over Zoom from this week's XY Planning Network event, read the move as a break from precedent rather than a routine relationship review. "They just gave a hard 'no,'" he said. "It seems like a bizarre decision to cut off the next generation of advisors." Past minimum increases came with a fee option for advisors determined to stay, and RIABiz has reported on a $10,000 annual custody fee attaching to a wider swath of small firms. This time, according to Kitces, there is no such out.

Fidelity's own account is spare. A spokeswoman told RIABiz the firm "recently established a $100-million asset minimum for new advisory firms joining the Fidelity platform" and is "now extending that criteria to existing custody clients for consistency." Tim Welsh, the Nexus Strategy principal whose tip brought the story to RIABiz and who has prepared a white paper on the segment withdrawal, found the explanation notable for what it leaves out—the only stated rationale is that Fidelity regularly reviews its client relationships against its long-term strategy, with no mention of cost, service, or what the departing firms have contributed over the years.

The letter reached the industry through advisors, not the company: Alex Chalekian, founder and CEO of Lake Ave. Financial, posted about it on LinkedIn and told RIABiz he expects the decision to "backfire."

Kitces and Welsh agree on the underlying economics even as they fault the execution. Kitces has argued for years that the small-RIA custody model is broken, and Welsh told RIABiz the model works far better, "much better," in his words, when an advisor runs $1 billion rather than $100 million. Serving small firms, RIABiz notes, "can stink economically," and Fidelity has long been among the least tolerant custodians for small clients.

Part of Kitces' objection concerns distribution: a sub-$100-million firm today can grow into a much larger one later, and a custodian that sheds the small end forgoes the chance to grow alongside it—the "next generation of advisors," in his phrase. Serving only the firms that have already arrived is the part he calls bizarre.

The $100-million line already applied to firms seeking to join the platform; Fidelity is extending the same bar to existing clients below it, which is what "consistency" means in the spokeswoman's account. For the advisor, the practical effect is a threshold that now reaches a relationship already in place, not only one being considered.

For an advisor on the receiving end, the industry debate narrows to which custodians will still take a firm of this size and what leaving costs; the platforms that will accept the firms Fidelity is shedding are not named, and no price is put on a transition. The firms being cut are small and, in RIABiz's description, frequently state-registered, which likely leaves them with less negotiating leverage than a larger custodied book would command.

Whether the hard no pushes those firms toward a merger or an outright sale is a question the coverage raises without answering, but it is the decision the letter forces. A firm too small to hold a platform's attention may conclude that pairing with a larger partner is the more durable way to keep its clients in custody, and the loss of a chosen custodian becomes the first concrete cost of staying small.

The platform logic behind the letter is easier to see: the custodian no longer behaves like a neutral utility, and the platform now chooses which clients it wants. Fidelity's letter is that choice made explicit.

The other large custodians have been drawing similar lines: in August, this publication reported that Schwab will stop referring sub-$5-million prospects to firms in its Advisor Network beginning in 2027, keeping the smallest leads for itself. A sub-$100-million RIA choosing its next custodian now has to weigh whether that platform will treat the relationship the same way in a few years.

RIABiz frames a Fidelity deal involving Savvy, announced the previous week, as a development that may soften any blow for the firms being cut, though it does not detail what the deal entails.

Kitces made his remarks from the XY Planning Network event, a gathering built around exactly the kind of small, largely state-registered advisors Fidelity is declining to serve, and where some members still custody assets at the firm. The advisors holding those letters now have a clear answer to a question they had not been forced to ask: the economics do not work at their size. Whether staying independent at that size still adds up is the question the next custodian's terms will answer—and Schwab's own cutoff arrives in 2027.