Custodians serve an essential function, guarding financial assets from theft or loss while managing accounts and transactions, overseeing settlement of financial transactions and overseeing compliance and tax issues.
Custodian banks utilize stringent systems and controls to safeguard customer information, and are subject to state and federal oversight agencies.
What is a custodian?
Custodians are responsible for safeguarding assets, such as stocks, mutual funds, exchange-traded funds (ETFs) and other securities. In some instances, they can also manage real estate or physical property on behalf of clients. Many companies offer these services; when selecting your custodian it is important to take fees and customer support into consideration.
Financial custodians maintain physical control over your accounts, including checking, savings, money market, 401(k), etc. They keep careful records and send monthly or quarterly statements for you. Furthermore, they facilitate transactions such as buying/selling investments, paying dividends, or re-pricing securities positions.
Self-directed custodians are accountable for managing customer-directed individual retirement accounts (IRAs). Investment advisory firms frequently employ self-directed custodians as an asset protection measure against fraudulent activity or any unauthorized usage or transfers, adhering strictly to federal regulations regarding wire transfer protocols and providing secure locations to store client assets. The IRS maintains a list of qualified self-directed custodians.
Custody refers to the right to keep and care for something. In a divorce situation, for example, custody may be awarded legally between parents, such as mother versus father rights. A man went before a judge in attempt to gain custody but unfortunately lost their case.
Custody banks are financial institutions that safeguard assets for individuals and companies alike, while also providing additional related services.
Mutual fund custodians protect the securities that make up mutual fund portfolios, so it’s vital that these institutions separate themselves from management of a mutual fund company, which focuses on overseeing those investments.
Investors looking to use their IRA for riskier investments such as private placements, real estate or cryptocurrency must locate an experienced nonbank custodian to act as trustee. The IRS maintains a list of such custodians. Equity Trust is registered as a state chartered trust company in South Dakota which qualifies us to hold retirement assets safely in our custody.
Custodial financial institutions protect the accounts and assets of individuals and institutions alike by offering related services like account administration, transaction settlements, dividend collection/distribution/tax support/forex management1.1
When investing in self-directed IRAs, choosing a reliable custodian is of utmost importance. There are several reputable IRA custodians available, from privately held firms and bank departments regulated by state banking departments to those approved by the IRS – one great resource is found on their website where a list of nonbank custodians and trustees are listed.
However, if you decide to use a private custodian that isn’t on the IRS list, conduct thorough research and consult with an investment professional or attorney before making a decision. An ideal custodian would offer inexpensive setup fees and minimal administrative fees in order to keep costs under control while being transparent about their fee schedule.
The IRS mandates a custodian to oversee the assets of IRA owners, such as traditional and Roth IRAs, Simplified Employee Pension (SEP) IRAs, health savings accounts and health reimbursement accounts. Fraudulent scammers may pose as custodians; legitimate custodians must be on the IRS list.
Custodian banks typically serve to protect customers’ assets both electronically and physically, managing accounts, transactions, settlements and compliance issues for them. Custodian banks may even act as mutual fund custodians though only for securities invested by mutual funds.
Nonbank custodians play an instrumental role in self-directed IRAs, which allow investors to use retirement funds for investing in assets other than traditional investment vehicles like mutual funds. This can include real estate, precious metals and commodities trading platforms as well as private placements such as promissory notes or tax lien certificates which often can provide more profitable results than stock market assets or similar regulated instruments.