What does the Custodian do for Me and My Wealth Management Firm?

What’s the Difference Between Your Wealth Advisor and Your Custodian?

Developing a wealth management strategy can often seem complex and intimidating, in part due to terminology that can often lead to confusion or misunderstanding. One term you’ll hear during wealth management meetings is “custodian”. Understanding the difference between the “custodian” and your “wealth or financial advisor” is important to better understand how your money is managed.

First thing first: the Wealth Advisor

Many clients work with wealth management firms to meet their financial goals. As a client of a firm, you will be familiar with your wealth advisor; this is the person with whom you interact regularly at your wealth management firm. They are the ones responsible for ascertaining your individual needs and goals for your future.

Your wealth advisor (also sometimes known as a portfolio manager) will work with a team to develop an investment policy statement (IPS) to best meet your goals. The IPS outlines the investment strategy, asset allocation and other constraints to be implemented based on your specific circumstances including, you risk tolerance. Your IPS establishes the how and in what assets your money is invested.
Your wealth advisor is supported by a team to facilitate all transactions within your portfolio. Both the portfolio manager and the team work together to ensure your portfolio is aligned with the investment strategy set out in your IPS.

So what is the Custodian?

While your firm is able to make decisions about the management of your investments, it is important to know that the firm does not hold your portfolio assets.

This is where the role of a custodian comes into play. A custodian is a third-party financial institution responsible for the safekeeping of your assets. By holding your portfolio assets for you, as an entity separate from your investment management firm, the custodian plays a significant role in the protection of your investment portfolio against misappropriation and the impact an insolvency of the investment advisor.

For more information on the role your custodian plays, click here.

Wealth Management Firm and Custodians: two separate entities

It is important to understand that the role of a custodian is separate from your wealth or investment management firm’s duties. Essentially, your custodian’s role is simply to hold and protect your money; it is held in safekeeping, to ensure there is no opportunity for your funds to be misdirected. This is why, for example, all cheques and money transfers are payable to the custodian–not the wealth management firm. This separation safeguards your account holdings, from misappropriation of your portfolio assets or the impact of an insolvency of the investment management firm.

What does this look like for IP Private Wealth Clients?

What is IP Private Wealth?

IP Private Wealth is a Family Office—a team of wealth advisors that operates as a round-table board of advisors. Our 360° approach to examining your goals, wealth, and future needs is what makes us the first and only choice of family office for our clients. If you’ve been looking for a way to manage your wealth more effectively, reach out to us.

IP Private Wealth offers wealth management services, and our investment counsel–IP Investment Counsel–offers investment management services. If you’re a client of ours, you will be familiar with your assigned portfolio manager and their support team; and as a client of IP Investment Counsel, your custodian is Raymond James Ltd.

Think of it like this: your custodian, Raymond James Ltd., is the safety deposit box where your investment assets are held, and IP is the professional service provider you entrusted to decide how, where, and when your money is invested based on the IPS plan developed with your IP Private Wealth Advisor.

So, when you would like to make a change to your investment strategy, make a withdrawal or make a deposit, your team at IP will facilitate your request, and the money will flow in or out of your accounts held at Raymond James Ltd.

It is customary to receive reports from both IP Private Wealth, plus a separate report from your custodian—Raymond James. Reports from IP Private Wealth include mandated disclosures as well as additional information that the firm believes would be helpful. For example, we may provide information on the performance of your portfolio during the year and additional value-added reports such as the quarterly commentary and supplemental tax package.

From your custodian Raymond James Ltd., you will receive investment account statements and official tax receipts. It is a good practice to ensure that the account totals in the account statements produced by both your investment management firm and your custodian do not show large discrepancies. Totals may not be an exact match due to factors like exchange rates and the timing of reports, but there should never be a large difference.

When working with a reputable investment/wealth management firm and their custodian, investors can feel a greater sense of confidence that their money is both well protected and well managed. Until you understand the relationship between firm and custodian, it can be confusing to receive account statements from two company names; but now that you understand it, you’ll see those coupled reports as a regular reminder that your portfolio is being properly cared for.