What Is a Custodian, and Why Does It Matter?
What is a custodian?
A custodian is a financial institution that holds and maintains investment accounts and assets on behalf of clients. Depending on the arrangement, a qualified custodian may be a bank, a registered broker-dealer, or another eligible financial institution.
The custodian and financial advisor generally serve different roles. The advisor may provide investment advice, portfolio management, and financial planning services, while the custodian maintains the account, processes transactions, provides account records and statements, and handles certain administrative functions.
For example, when an investment transaction is authorized or directed through an advisory relationship, it is processed through the client’s custodial account. Clients generally receive account statements and other records directly from the custodian and may also have online access to view account balances, holdings, and transaction activity.
Custodians may charge separate fees for certain services, such as wire transfers, paper statements, account termination, or other administrative services. These charges, if applicable, are separate from advisory fees unless otherwise disclosed.
The specific responsibilities of the advisor and custodian depend on the account structure, the custodial agreement, and the services being provided.
What Clients Should Know
Clients should review account statements and confirmations received directly from the custodian and contact the advisor or custodian with any questions or discrepancies. Depending on the account arrangement, the advisor may have authority to place trades or manage investments but does not directly hold client assets.
If the custodian is a SIPC member, certain securities and cash may be protected if the brokerage firm fails, subject to applicable limits and conditions. SIPC protection does not protect against declines in investment value or other market losses.
Questions?
Do not hesitate to call or send a message. We are happy to clarify the relationship and explain how the pieces fit together.