A two-tier system is developing in the custody business, with some firms raising custody fees for current clients while offering low fees to new prospects.
State Street Corp., Boston, and J.P. Morgan Investor Services Inc., New York, are two firms mentioned most often as following this practice
The City of Fresno (Calif.) Retirement System recently replaced State Street, which had been its custodian for 12 years, with Northern Trust Co., Chicago, because "State Street came out with some high fees," according to Stanley McDivitt, retirement administrator of the $1.6 billion pension fund. State Street was charging $2.1 million for a five-year contract, while Northern charged less than $700,000 for the same time period.
The $24 billion Retirement Systems of Alabama, Montgomery, recently hired State Street to replace J.P. Morgan as custodian. Darren Schulz, acting chief investment officer of the system, said J.P. Morgan's fee was about five times higher than the fee offered by State Street when it sought the new business.