What are the roles of a securities custodian?
The securities custodian is a basically a vault or a depository. It holds a person’s or organization’s assets for safekeeping but doesn’t invest them.
It acts based on the client’s or portfolio manager’s instructions. The securities custodian can:
- Carry out transactions for its clients (such as transferring a sum of money to purchase shares)
- Cash dividends or interest income
- Manage cash (the portion of the portfolio that isn’t invested)
Who are a securities custodian’s typical clients?
Safekeeping of securities services are often aimed at organizations that have a lot of liquidity. Some potential clients are:
- Pension funds
- Private or public companies
- Trusts
- Foundations
- Holding companies
- Very high-net-worth individuals
Good to know: You’re required to have a securities custodian if your investment portfolio consists of segregated securities. Rather than choosing existing private funds, you can opt for made-to-measure assets.
What are the advantages of doing business with a securities custodian?
Simplifying operations
By centralizing its clients’ assets, the securities custodian can simplify things and give clients a clearer picture of their portfolio. Everything is in the same place.
This also makes it easier to have several managers managing the assets.
Example: An organization contacts securities custodian X. Its assets are managed by several managers: Y manages shares and Z manages bonds. Y and Z both go through securities custodian X to carry out transactions (cash dividends, etc.)
Homogenizing methods and administration
Different managers can use different methods and present reports in various ways. Reports are given to the securities custodian, who collects everything and presents the information the same way. Since everything is converted to the same format, reading the reports is much easier.
Ensuring continuity
The securities custodian ensures that systems and documents stay the same, even if portfolio managers change.
Example: A broker who manages your assets moves to another institution. It’s highly likely that their reports will change too. Accounting or tax return documents, for example, could be affected.
Neutrality
Since the securities custodian is a distinct entity from the portfolio manager, you can count on a neutral perspective.
It doesn’t gain anything by presenting you investment data showing excellent results.
Being able to count on a team of experts
With a securities custodian, you get access to a team of experts who can answer your questions and help you achieve your objectives. It can help you if you want to:
- Split your assets among several managers or categories
- Change your portfolio manager
- Invest in a new product (such as a new mutual fund). Example: a portfolio manager’s securities custodian could explain what the impacts of a decision would be on the financial statements.
There isn’t a universal solution on how your assets should be managed. But a securities custodian could make your life easier and offer you advice adapted to your needs. We’re here to answer your questions.