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 is an Omnibus Account?110 Views
Finance a la shmoop. What is an omnibus account?
Herbi just eats leaves, Carni just eats meat, Omni well it's pretty much [Different buses eating stuff]
everything. So yeah an omnibus as in bus-i-ness or business account services is
a bunch of investors who've all pitched in or wired in their capital to become a
percentage owner of that omnibus account. Why would people do this? Scale, volume,
discounts size, heft. When you have a lot of money in an account basic things like [Lots of money in a suitcase]
audit and legal fees and brokerage services and the fees with them and
other one-off costs get amortized across a lot of people in dollars invested [Definition of Amortization]
rather than being laid entirely or solely on one investor where they can
then be a meaningful percentage of the total and with an omnibus account you [Bus labelled Omni eating leaves]
also get anonymity since it's a broker dealing in street name with the account [Anonymity stamp]
interfacing with the street well investors can live if they want in the
lovely dark shadows of Erewhon. Omnibus accounts are sort of like your own [Full moon in a dark sky]
custom mutual fund without the whole nav, net asset value stamp requirements at
the end of each trading day and all the other regulations and filings and legal
crap needed for publicly offered securities it's like having a fully [Book labelled my very own omnibus account]
gassed up bus with a working GPS and Waze system you can drive anywhere you [Guy sat on a bus]
want on the investing landscape you don't have to tell anyone outside of
your own partners about it, and it works great as long as you all want to eat the
same kind of financial cooking.. [Omni asking Carni if he is going to finish his food]
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