(This article has been revised.)

Custodian firm Altruist Corp. is establishing itself as a strong competitor against giants such as Charles Schwab Bankand Fidelity Investments. The Culver City-based financial technology company, which safekeeps assets for financial advisers and investors, has now achieved unicorn status with the help of a $169 million series E funding round.

Altruist bills itself as the only modern custodian built exclusively for registered investment advisers, and it’s making a name for itself among other custodian firms dominating the market today by committing to not compete with its own clients.

Registered investment adviser (RIA) firms typically manage assets, such as stocks and bonds, and advise clients on how to best manage their investment portfolios. RIAs themselves then use custodian firms to safekeep those assets, manage the settlement of transactions and ensure compliance with tax regulations.

Altruist stepped into the market in 2018 and has since raised more than $450 million of funding. Prior to the series E round that closed in February, the company closed $112 million of series D financing last April.

Chief compliance officer and chief operating officer Mazi Bahadori said the new funding will allow Altruist to ramp up its pipeline of feature development.

“I don’t ever want to say we’ve mastered anything, but (we) understand exactly what an RIA needs, how fast they’re growing, what they’re going to ultimately look like in three or five years and will we still be a match,” Bahadori said.

The company generates revenue on custody through structures such as fully paid lending, net interest income and investment model fees. The company additionally offers a model marketplace where advisers can pay a small fee to access a variety of model portfolios from top asset managers.

Becoming a ‘unicorn’

The new funding pushes Altruist to the status of “unicorn” – meaning a company that is valued at $1 billion or more. The series E funding round valued Altruist at more than $1.5 billion, up from $929 million last year. Chief Executive Jason Wenk said that he’s grateful for the validation this news provides for the company’s employees and team. Before founding Altruist, Wenk launched an RIA firm called FormulaFolios, which was acquired in 2020 by Brookstone Capital Management LLC.

Bahadori and Wenk agreed that the valuation increase is a form of market validation, proving that Altruist has staying power and holds “real value” for customers.

“Early in any company there’s a level of existential risk, and I think we’re past that,” Wenk said.

The company’s team size has also increased considerably since its series D round, sitting at about 433, compared to 343 one year ago. Altruist works with 3,700 independent advisers. It claims that, based on the number of RIAs served, it is the third largest custodian firm in the nation, behind Schwab and Fidelity.

Competition with clients

The more custodian firms on the market, the merrier, according to Adriel Tam. Tam serves as chief executive of financial adviser verification platform AdvisorCheck and previously co-founded RIA firm Viridian Advisors. He said that a “duopoly” was established after Schwab acquired stockbroker TD Ameritrade in 2020, and that this situation isn’t good for consumers or RIAs.

“Having less (custodian) options seems simpler, but it just creates more of a monopoly for the big boys that are still there,” Tam said. “I am a fan of a more independent custodians entering the market, like Altruist … it’s good for the end consumer.”

Tam noted that Schwab and Fidelity both operate competing retail businesses, meaning that the custodians can directly compete with advisers in the marketplace for customers, and can profit from a solicitation fee if they introduce a client to an RIA. Altruist has no retail business and does not manage any business lines other than custodial services.

Jalina Kerr, managing director of client experience at Schwab Adviser Services, said that Schwab does not compete with its advisers. She said that advisers are encouraged to speak up if they ever feel that Schwab is competing for a client or a prospect, and that Schwab would then “stand down.”

No rush to go public

At its current valuation, a public offering would seem to be a logical goal for Altruist. According to Statista, the median company valuation before an initial public offering was $710 million in 2021, though the investment market has been notably volatile in recent years.

Bahadori said Altruist is currently focused on executing product development goals and noted that the company has benefitted from supportive investors in the private market.

“If you were placing bets (for the future), I think a public listing is probably a pretty good bet to make,” Bahadori said. “An acquisition is just not something that we’re interested in, there are so few firms that that would even be accretive or make any sense whatsoever. The tricky thing, of course, is it’s virtually impossible to predict when you might have favorable (market) conditions to do that kind of stuff.”

Wenk said the company would likely start to seriously consider a public offering in the next two to five years, but that it’s “not top of mind” today.

Regarding its ongoing high-growth phase, Wenk said that he believes the company will succeed as long as it stays “laser focused.”

“It’s easy to start believing your own hype, and I think that actually maybe happened to a number of companies (around 2021), when valuations were absurd and companies got complacent,” Wenk said. “If we stay focused, I suspect we’ll do really, really well. If we lose focus, we won’t, it’s pretty simple.”

Wenk additionally noted that, compared to the older “duopoly” giants, Altruist’s younger age is a benefit.

He said that once a company reaches a certain size or scale, rearchitecting a platform or advancing its base technology becomes an incredibly complex and arduous task. He said that Altruist’s platform was built to focus on operational efficiency, customer service and strong automation tools.

With this new funding, the company plans to build “more ambitious” products for customers and to expand its go-to-market efforts.

“We’re really, really focused on our customers, we have a very modern technology stack that allows us to have incredible operational efficiencies,” Wenk said. “In our segment of the market, I would be most fearful of Altruist if I was anyone else.”