Financial Advisors: 3 Reasons to Care about Custodial Services

Financial Advisors: 3 Reasons to Care about Custodial Services

Financial advisors working for or through Western International Securities enjoy a range of great benefits including custodial services provided by well-known names like Pershing and National Financial Services. In that regard, Western International is a lot like many other broker-dealer firms who arrange custodial services through third-party providers.

From the financial advisor’s point of view, custodial services are crucial to meeting legal responsibilities, fiduciary responsibilities, and the advisor’s own commitment to success. To say that an advisor’s choice of custodial service providers is critical is to state the obvious.

The financial advisor’s success or failure could ride on the firm providing custodial services. A good choice results in that firm supporting and enhancing the advisor’s business day after day. A poor choice could result in problems that distract the financial advisor at the very least, or land him/her in trouble with clients or the law.

If you are a financial advisor looking for new partners for your business, here are three reasons you should care about custodial services:

1. They Protect Your Clients

As you know, a custodian in the financial services world is a firm that holds securities for safekeeping. Some custodial service providers also offer additional services that may include accounting, settling transactions, and handling interest and dividend payments. All these things are put in place in order to protect your clients from theft or loss.

Whether your clients know it or not, they are entrusting their investments to your custodial services provider. What must be understood is that custodial services are intangible to your clients. If they know about them at all, they probably view your service provider as a mysterious, unknown entity that operates in the shadows of Wall Street. They do not realize how much they depend on that provider for their own financial security.

2. They Protect You

You have neither the legal authority nor the infrastructure and resources to hold on to your clients’ securities for safekeeping. That’s okay though; you are a financial advisor rather than a custodian. But that means that one of the responsibilities of your service provider is to protect your interests right along with those of your clients.

For example, certain arrangements may give custodians the right to assert temporary possession over certain assets if required to protect the best interests of the client. Should such a situation arise with one of your clients, you are taken out of the equation for as long as necessary to address the problem at hand. This protects you from liability to a certain degree.

3. They Protect Broker-Dealers

Lastly, your custodial service provider also protects your broker-dealer, if you have one. They hold client securities for safekeeping so that your broker-dealer does not have to. If they offer additional services like accounting and tax support, those services further reduce the responsibilities assigned to the broker-dealer. This reduces liability as well.

One last thing to consider is that law requires custodians to report certain kinds of activities conducted on behalf of clients. Such reporting removes any ambiguity over how securities are being held or modified. Reports keep clients up to date on where things stand, thereby strengthening their trust in their advisors.

Any financial advisor looking to build a relationship with a new broker-dealer would do well to investigate who handles custodial services for the firm. The choice of a custodial service provider is critical to the success of the advisor’s business, as well as his reputation and ability to carry out fiduciary responsibilities. Settling on just any service provider will just not do.


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