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Here's how to choose your financial advisor's custodian.

Registered financial advisors use custodians to house and protect their clients’ assets. Often, financial advisors offer multiple custodian options to their clients. This allows them to expand their services, investment options, and diversification of assets. By offering multiple custodians, your financial advisor can match you with one that fits your financial needs. Here’s what you need to know about to choose a good custodian for you.

Consider working with a financial advisor as you evaluate persons who might be good custodians.

What Does a Financial Advisor Custodian Do?

Before we dive into the custodial specifics, it’s important to understand why your financial advisor must work with a custodian in the first place. The U.S. Securities and Exchange Commission (SEC) requires investment advisors registered with the SEC to abide by the “custody rule.” This rule states that if an investment advisor has custody of their clients’ funds or investments, they must protect these assets by using a qualified financial advisor custodian. This procedure helps minimize the risk of loss, theft, or misuse of funds by the investment advisor.

A custodian is a financial intuition that looks after the clients’ funds or investments. Financial advisor custodians can hold the assets either electronically or in a physical form. Typically, since custodians are responsible for the security of these assets, they are often large, reputable banks.

What to Consider When Selecting a Custodian

Here's how to choose your financial advisor's custodian.

It’s important to choose a financial advisor custodian that will help you meet your financial goals. While your financial advisor may offer guidance and financial advice, your custodian will help you complete transactions. For example, while a financial advisor may help you create a distribution strategy for retirement, a financial advisor custodian will assist with the execution of this strategy. They will provide the proper documents and technical procedures necessary for distributing your funds.

Similar to assessing different banks, credit unions, or other financial institution, you have to consider your financial needs and which institutions can best serve you. You’ll want to consider factors such as custodian fees, convenience, customer service, and investment options. Even though your financial advisor may be able to guide you with making the proper decision, here are a few factors you should consider during the decision-making process.

The Client Experience

Accessibility of your accounts is an important factor when selecting a financial advisor custodian. You will want to work with a financial institution that has a customer service team available to help you with your needs. You will want to work with a responsive firm that can get your problems solved quickly.

For instance, if the custodian only has offices on the West Coast but you live on the East Coast, this may present a problem. It also makes addressing a financial hiccup in a timely manner somewhat more difficult.

Compare Custodial Fees

Financial intuitions charge custodial and transaction fees for the management and maintenance of your accounts. Custodial fees are often charged due to management tasks including the collection and storing of interest and dividends of your investments, sending a monthly and quarterly statement, and other duties necessary for managing your funds and securities. Keep in mind, custodial fees can have a material effect on your returns. Selecting the firm with the lowest fees may help you maximize your investment returns and savings growth.

Additionally, depending on how you choose to use your accounts, you may want to compare other fees such as wire transfer fees, paper statement fees, account closure fees, overdraft fees and more. While these fees may not sway your decision, it’s important to include them in the evaluation of each financial advisor custodian, so there are no surprises along the way. For example, if you decide to close your account at any time and you’re hit with a $250 closure fee, you don’t want to be surprised.

Review Product Offerings

While most custodians offer core investment products, there may be some differences when it comes to alternative investment selections. If this is important to your financial plan, you will need to consider product offerings in your custodial selection.

Examine Technology

Every custodian has its own technology platform. It’s important to examine each custodian’s flexibly and solutions for managing daily transactions such as trading and portfolio management. For example, some smaller custodians may not offer an advanced technology platform that allows you to access your accounts online. If you want to have easy access to your funds, you may want to select a custodian that’s more technologically advanced.

Additionally, as technology continues to progress, you may want to choose a custodian that adapts. Selecting a custodian that is slow to improve their technology may cause you future frustration.

Ask for Guidance from Your Financial Advisor

By now your financial advisor should understand your financial needs. They may be able to point you in the right direction and help you asses the most suitable custodian.

Your financial advisor can also share how their other clients feel about their relationships with each custodian. Your advisor can help you weigh out the pros and cons of working with each of them.

Bottom Line

Here's how to choose your financial advisor's custodian.

While selecting the right custodian is important, remember it’s not permanent. Even though it’s a hassle to switch custodians, it may be worth the effort in the end. So, once you select the best custodian for your needs, it’s wise to evaluate your relationship on an annual basis to ensure you’re getting what you need. Additionally, as your financial advisor grows their practice, they may grow into another custodian. If this happens, it will allow you to potentially find a better option for your financial needs.

Financial Planning Tips

  • If you’re not currently working with a financial advisor, it may be time to speak with one about your financial goals and objectives. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Start saving for retirement early. No matter which retirement savings account you settle on, it’s always better to start saving sooner than later. The sooner you invest your money, the more time you have to reap the benefits of compound interest. This can have a big impact on your retirement savings.

Photo credit: ©, © Productions, © Meepian

Ashley Kilroy Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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