The argument for knowing exactly what a custodian is can be summed up in two words: Bernie Madoff. If you need a refresher, Madoff was the operator of the largest ponzi scheme in the world. He was able to defraud over 4,000 clients for one reason: he was their custodian as well as their financial manager.

This unassuming word carries a lot of importance when it comes to your finances. A custodian, also referred to as a custodian bank, serves as the backbone to your unseen financial infrastructure. Have you ever wondered how the stock you buy gets from the seller into your account? Or how the interest from your bonds is transferred to you? That would be your custodian working their magic behind the scenes.

So, how do you avoid falling into a Madoff-type situation? Well, the immediate question that should come to mind is, “Who has possession of my assets?” We don’t live in a world where bonds and stock certificates are mailed to our houses for safekeeping (that would be a disaster). Instead, a custodian bank plays the role of guardian. A custodian bank:

• Safeguards your assets.
• Settles transactions like making sure everything you buy and sell ends up in your account
  
• Generates statements for you.

When I manage investments for my clients, I don’t have possession of any of their assets. I use an outside custodian named Pershing. Using a custodian bank protects your assets against any misuse.  If you don’t know who your custodian is, ask. Your financial advisor should be happy to share that information with you and answer any of your questions. That way, you’ll feel confident that your assets and your financial future are being well-protected. 

For more detailed information about the function of custodian banks, read this resource published by Comptroller of Currency. Interested in investment management services and how they fit into your financial plan? Learn more here.