It is important to understand the differences between custodian services and advisory services.

The most important difference is that the investment advisor initiates transactions as part of its portfolio management responsibility and the custodian clears transactions as part of its safekeeping responsibility. The custodian has no investment authority (unless assigned for overnight excess cash balance sweep management) but serves to provide an audit trail of all the activity within an investment account. Best practice is to always have the 2 functions housed within two completely unrelated business entities. The history of the capital markets has numerous instances of fraud occurring when both functions are managed within subsidiaries of the same corporate entity; think Bernard Madoff (Madoff Securities/Madoff Investments) and Nicholas Leeson (Baring Securities: Head of Trading and Head of Settlements).

At Atlas, we strongly advocate the separation of insured asset safekeeping and discretionary portfolio management.