How to Choose a Custodian: 7 Questions Every RIA Should Ask

For independent investment advisors, depositary is not ancillary service or technical detail. It is basic infrastructure of business. Client assets, transactions, reports, cash flows and most of operational load pass through depositary. A mistake in choosing such partner is costly – in terms of money, time and reputation.

In practice, many consultants choose depositary by inertia: based on recommendations from colleagues, because of well-known brand, or because “it’s easier to start that way.” This approach works until first scaling, growth of client base, or complication of investment strategies. After that, it becomes clear that platform cannot handle load, interfaces are inconvenient, commissions eat into margins, and support cannot keep up with real requests.

Below are seven questions you should ask before signing contract with depositary. They do not require complex calculations, but they help you immediately rule out unsuitable options and take sober look at partnership, without marketing promises.

1. For which clients are you building infrastructure?

First question should be asked not to depositary, but to yourself. Who are your clients now and what will they be like in future? Private investors with small portfolios, wealthy clients, family offices, corporate structures – all these groups have different requirements for depositary.

It is important to consider not only size of accounts, but also customer behaviour. Some people regularly deposit and withdraw money, some expect online access and clear reporting, and for others, speed of support response is important. If depository is focused on mass market, it may be inconvenient for complex portfolios. If platform is tailored to large clients, it often proves to be excessive and expensive for small accounts.

Until this issue is clarified, any discussion of functionality and tariffs is meaningless.

2. What are restrictions on asset size and business structure?

Most depositories have requirements for minimum amount of assets under management. Sometimes these are stated explicitly, sometimes they are hidden in terms and conditions for accessing key functions. Formally, cooperation is possible, but without certain level of assets, platform operates in limited mode.

This is critical moment for small and growing consultants. It is important to understand in advance what will happen if assets are distributed across multiple platforms or if growth is uneven. It is also important to clarify whether terms and conditions will change as business grows and whether new obligations will arise over time.

Depositary should be interested in your growth, rather than viewing you as temporary client.

3. How much does platform actually simplify work?

Marketing materials almost always promise automation and time savings. In practice, it is important to check which processes are truly automated and which still require manual work.

This involves trading across multiple accounts, managing model portfolios, rebalancing, accounting for tax implications, and preparing reports. If consultants or their team spends hours on routine operations, these are direct business costs. A good depository reduces number of manual actions and errors. A poor one becomes yet another source of workload that has to be compensated for by staff.

4. What does daily interaction experience look like?

Issue of user experience is often underestimated. Meanwhile, it is precisely this that determines how much time consultant spends explaining to clients how system works and how many issues have to be resolved instead of depositary.

You need to look at interface through eyes of the customer and eyes of employee. How easy is it to open account, upload documents, get report, find transaction history? Another important point is customer support. It is important not only to have contact centre, but also to be able to resolve issues without multi-stage escalations.

If client finds it inconvenient to work with depositary, negative perception is automatically transferred to consultant.

5. Can investment decisions be scaled?

Even if there are only few clients now, platform should be able to handle growth. This means supporting model portfolios, automatic rebalancing, flexible strategy configuration, and uniform rules for different client groups.

If each new account opening requires individual configuration and manual control, business ceases to scale. As result, revenue growth is accompanied by increased costs rather than efficiency.

Depositary should help to replicate decisions, not hinder process.

6. How much does it really cost?

Commissions are one of most sensitive issues. It is important to look not only at base rates, but also at all associated costs. Trading commissions, storage fees, account maintenance, additional reports, asset transfers — all of this adds up to total cost.

Special attention should be paid to conflicts of interest. If depositary earns money by promoting its own products, this may affect neutrality of platform and final cost to the customer.

More transparent cost structure, easier it is to build honest relationships with customers.

7. Is depositary prepared to be long-term partner?

Last question is most general, but also most important. When choosing depositary, consultant is essentially choosing partner for years to come. It is necessary to assess whether platform is developing, whether company is investing in technology, and whether it is responding to changes in market and regulatory environment.

It is important to look not only at current capabilities, but also at direction of movement. Platform that is not updated and adapted quickly becomes obsolete and begins to slow down business.

Good depositary grows alongside consultants and does not create barriers at new stages of development.

Choosing depositary is management decision, not formality. It affects operational efficiency, customer experience and business sustainability. Seven questions described above do not require complex models and forecasts, but they allow you to soberly assess market offerings and avoid mistakes that become apparent too late.

For independent investment advisor, depositary is foundation. And choosing one should be treated with same care as choosing investment strategy.

FAQ

How to choose a custodian?

Depositary is chosen based on how well it suits specific practice of consultant. First and foremost, they look at the client profile, asset volume, investment strategies, and operational requirements. It is important to assess how much platform simplifies daily processes, whether commissions are transparent, whether clients find services convenient to use, and how well support works.

What does a custodian do for an RIA?

For independent investment advisors, depositories perform infrastructural functions. They store clients’ assets, keep records of securities and cash, execute trading operations, ensure settlements and generate reports. Account openings, fund transfers, corporate actions and tax reports all pass through depositories.

What questions should you ask when choosing a financial advisor?

When choosing advisor, it is worth asking questions about how they work with assets and what infrastructure they use. It is important to understand who custodian is, how funds are stored, what fees client pays, and whether there are any conflicts of interest. Advisor’s experience, transparency of reporting, approach to risk management, and willingness to explain decisions in simple language are also important.

Can RIA have multiple custodians?

Independent investment advisors may work with several custodians simultaneously. This is common practice, especially among larger or specialised firms. Several custodians are used for different types of clients, strategies or asset classes. This approach increases flexibility but complicates operating model and requires greater control.