Glossary
Custodian
A custodian is the financial institution that holds and safeguards a client's cash and securities, executes trades, and reports the account directly to the client.
Independent advisers typically do not hold client money themselves; assets sit at a third-party custodian (large brokerage firms commonly serve this role) in an account titled in the client's name, and the adviser is granted limited trading and fee-deduction authority.
Why it matters in practice
Third-party custody is a core investor protection: the client receives statements directly from the custodian, can verify holdings independently of anything the adviser says, and can fire the adviser without moving the assets. The most infamous frauds in the industry involved advisers who controlled custody and printed their own statements — a structure worth declining.
Related terms: Registered Investment Adviser (RIA) · Discretionary Management · Recordkeeper · Fiduciary