Various industry surveys over the years have indicated that the larger an RIA gets, the more likely they are to leverage the services of more than one custodian. Over my 27 years in wealth management, I can confirm that the conventional wisdom has been, regardless of the size of the RIA, “We need to keep our custodian honest—let’s split our assets across two custodians and make sure they are competing for our business at all times.” At face value, this seems like logical reasoning, but a deeper understanding reveals the potential drawbacks of this approach.

When an RIA splits its assets between two custodians, each custodian only considers the assets held with them when determining the RIA’s service level. If, for example, your RIA has $1 billion of assets under management and you place $500 million at Custodian A and $500 million at Custodian B, neither custodian views you as a $1 billion client—rightfully so, they only view your firm based on the amount of assets you have custodied with them. Worse yet, if you are a $2 billion RIA and place $500 million with Custodian A and $1.5 billion with Custodian B, you are going to notice a stark difference in service between custodians, as you qualify for custodian B’s highest service tier, but do not qualify for the highest tier at custodian A. Therefore, you will not be comparing apples to apples when you evaluate your service across both custodians.

Related: Apex Continues To Make Moves To Compete With Big Three Custodians

As a consultant, when I traveled around the country meeting with RIAs, I’d always marvel at the fact one RIA would tell me that Custodian A is far superior to Custodian B, but then I’d travel to the RIA down the street, with the same amount of total assets, and they would say the exact opposite. In their experience, Custodian A struggled, and Custodian B was clearly a better partner for their business. The only difference in both scenarios was the amount of assets with each custodian:  the RIA who was happy with Custodian A happened to have 70% of their total assets custodied there, and the RIA happy with Custodian B had over 80% of their total assets there. In my opinion, there aren’t “good” or “bad” custodians in our industry—they all do an amazing job partnering with RIAs and supporting the end client. An RIA’s level of satisfaction with a custodian is directly correlated with the proportion of assets held with them.

My advice has always been to put as many assets as you can with one custodian, qualify for the highest service tier, and look to keep things as simple as possible for your support staff. Don’t make them learn the nuances of each custodian, the different terminology between custodians and the different paperwork requirements and the different policies and procedures among them. The mere potential of an RIA exploring relationships with other custodians is sufficient to encourage competition and ensure fair treatment by the current custodian. Therefore, keep things as simple as possible for yourself and your team.

Related: CFS Investment Advisory Services: It’s All About The Custodian

The reason larger RIAs are more likely to split assets across two custodians is because a $5 billion RIA, for example, can divide their assets and still qualify for the highest service tier at both custodians. I’ve never been able to pin a custodian down and learn exactly what AUM level qualifies for the highest service tier, but I think $1 billion is a safe bet. So that $5 billion RIA can still disproportionately split assets $3.5 billion to Custodian A and $1.5 billion to Custodian B, and they will still be placed in the highest service tier at both. Keep in mind that it is only natural that the $3.5 billion custodian will offer some services and pricing concessions that the $1.5 billion custodian will not; but compared to a $1.5 billion RIA splitting assets $1.1 billion and $400 million across custodians, you can see where the larger RIA has an advantage with both custodians.

The other primary reason larger RIAs split assets across custodians is for M&A considerations. The landscape for buying RIAs is ridiculously competitive, and it’s very difficult to get an acquisition to the finish line. Buyer and seller need to agree on: investment philosophy, geography, culture, and of course, valuation. Assuming an agreement can be made across these tough topics, it’s going to be hard to then say, “Oh, but you need to re-paper all of your clients to our custodian.” It’s going to be tough to compete with another buyer who tells the seller, “Oh yes, we have a relationship with your custodian … our back-office support staff is very familiar with them, you can absolutely keep your clients at that custodian.”

If your firm’s assets are currently with only one custodian and you are considering getting into the M&A game, it is a good idea to reach out to other custodians and introduce yourself. Let them know that if you were to acquire a firm already custodied with them, you plan to leave the assets there. You’ll want to have that discussion now and learn about the onboarding process and how to get your RIA set up on their platform so during those M&A negotiations, if you can’t say, “Yes, we already have assets there,” you can at least say, “Yes, we’ve had many discussions with that custodian, we understand the process and it will be a smooth transition for you, your employees, and your clients to join our firm.”

We owe a great debt of gratitude to the custodians that support the RIA industry. Clients demand asset safety, record keeping, and banking products such as checks, debit cards, credit cards, lending solutions, mobile deposits, etc. RIAs themselves don’t offer these solutions—it’s the custodians that make that possible. They also do a fantastic job with their own approach to client segmentation—knowing their exact profit margin for each RIA on their platform and tying a certain service level to each. Understanding their business model can help you determine the right approach to take with your custodian(s).

Matt Sonnen is Chief Operating Officer at Coldstream Wealth Management, as well as the creator of the digital consulting platform The COO Society, which educates RIA owners and operations professionals how to build more impactful and profitable enterprises. He is also the host of the popular COO Roundtable podcast.