A custodial agreement is one where a third party contractually agrees to manage or hold an asset on behalf of the actual owner or beneficiaries in return for a fee.
This is often the case with retirement plans, such as IRAs and health saving accounts, which may be held at brokerage firms or banks, and 401-Ks, which an employer may have designated with an outside financial management or brokerage firm to collect and administer contributions and distributions. Institutionally, custodial agreements are often used when complex portfolios may contain asset classes unfamiliar to the primary managers.
An investment and commercial bank may be handling a portfolio of bonds and stocks, but may also have unusual real estate or art collections, for example, whose maintenance and management requirements are outside of its normal expertise. In those instances, a specialist firm would be contracted to administer those assets within the portfolio and the primary manager’s purview on a custodial basis.
Trustees administering funds for trust beneficiaries are, in effect, also operating under a custodial agreement arrangement. Trustees have a lot of responsibility over trusts and how the trust beneficiaries turn out. Gram Parsons inherited a trust fund, but was a heroin addict. However, as a member of the Byrds, he wound up creating Country Rock, with The Eagles being his most famous musical followers. Bruce Wayne inherited a trust fund and became an obsessed psychopath who would dress up like a bat and pick fights with random street thugs in alleys. Which trustee did the better job under the custodial agreement?
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Finance: What does it mean to have fiduc...51 Views
Finance a la Shmoop! What does it mean to have fiduciary obligation? Alright well
fiduciary refers to the responsible person, who has oversight, above a given
financial transaction, or process. That is, it is the fiduciary obligation, of the
head of a corporation's Audit Committee, to be certain that the
accounting process is handled fairly, objectively, inclusively and thoroughly [boss overseeing worker]
and there are a few other ly's in there, but well you get the gist. Doesn't it
seem strange, that some companies just seem to get into the same kind of
trouble again and again. Remember the BP oil spill, well it wasn't the first time
they'd had, an accident. You know, if you can call that spill only an accident.
What kind of oversight did they have? Any? Well some companies just have a [man carrying oil barrel
corporate culture that's run by the notion, that well, whatever isn't caught
as a crime, is legal. Lots of Wall Street stock brokerages came and went this
way. Yah, remember the Wolf of Wall Street? Kind of like that. Well what is
the obligation of a responsible party when faced with ethical dilemmas? Where
does the obligation start and stop? Should fiduciaries be held to a higher
personal standard than normal people? Yah, kind of the, you know, Harvey
Weinstein effect there. Yes, No, maybe, alright. Right, all three times. [question ABCD chart]
It's definitely yes, no, or maybe.
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