What is a custodian? | Millennium Trust Company

What is a custodian?

October 26, 2023
By Millennium Trust

If you’ve ever asked, “what is a custodian?” in the financial services industry, you’re not alone. The financial world is filled with terms and titles that consumers have to sift through.

The word “custodian” has several different meanings. For some, the term may signify a person responsible for maintaining a building or public space. But in the banking and financial space, a custodian is a financial institution responsible for holding stocks, bonds, and other assets to safeguard them from being stolen or lost. These assets may be in digital or physical form.

Custodians are typically financial institutions such as banks, brokerage firms, and trust companies that deal with large amounts of assets and securities. However, there are distinct differences between a traditional bank and a custodian. Though a bank can act as a custodian, traditional banks offer deposit accounts, such as checking and savings accounts, and provide loans and other credit facilities. A custodian, whether it is a bank or other type of financial institution, is responsible for safekeeping assets and related services; a custodian that is not a bank does not extend loans or manage deposits for customers.

What does a custodian do?

The role of a custodian can take on several different forms within the finance world and perform a variety of duties for their clients, and these clients can range from individuals to organizations.

The purpose of custody is to safeguard assets, but a custodian may also be responsible for administering accounts, facilitating transactions, and collecting income on investments.

While a custodian is responsible for safekeeping a client’s assets, it does not make investment decisions for the client.In certain cases, custodians may also take on the role of managing assets for minors and incapacitated adults.

How does a custodian work?

A custodian can be used in a variety of circumstances. One of the most common instances is when an individual investor or organization employs an investment advisory firm. Investment advisors engage a custodians to safeguard their clients’ assets.

A custodian may be paired with a trustee. When an individual or organization creates a trust, a trustee may use custodians to hold assets placed in the trust.

Custodian vs. trustee

Since they often go hand in hand, it’s not uncommon to misunderstand the differences between custodians and trustees.

A trustee may be an individual (like a family member or attorney) or an institution (like a bank or trust company that offers brokerage and asset management services. A trustee manages assets held in trust for an individual, an estate, or a retirement plan. Put simply, a trustee manages a trust, while a custodian holds the assets within the trust.

Trustees can manage, sell, and invest the trust’s assets and have a fiduciary duty to make these decisions with the beneficiary of the trust’s best interests in mind.

Finding a custodian

Like all financial decisions, its’s important to research and consult a financial advisor or tax expert when finding a custodian to hold your assets.

But there are some tips to keep in mind when looking for a custodian. Two things to look for in a custodian are the experience they provide to their clients and the quality of safeguarding assets. Ensuring that a custodian is reputable and can provide high-quality safeguarding measures is the first step to keeping your assets secure. One of the most important aspects to consider is the experience of working with a custodian.

Another important element of custody services is understanding the fees a custodian might have for holding assets. Of course, these vary between different custodians. Ask if custodian fees are based on specific services they might provide or the total value of a client’s assets.

How does Millennium Trust fit in?

Millennium Trust performs the duties of a directed custodian and does not sell investments or provide investment, legal, or tax advice. Millennium Trust is not a trustee, and we do not custody assets for minors or incapacitated adults.

We hold assets in an account on behalf of the owner. The account owner (or their authorized agent) is responsible for directing all investment/account activity. At their direction, we purchase/sell assets, as well as transfer or distribute assets from the account. As part of our role as custodian we also provide required account statements and tax reporting.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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