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Do I need a Custodian to invest for clients?

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Nov 13, 2009 6:00 pm

If I register with my state as an RIA do I legally need a custodian to charge a percent of AUM, OR can I just open them an account with Vanguard have their username and passport and manage their account, Then send them a bill charge them a percent of AUM.

Nov 13, 2009 6:21 pm

You have to have a power of attorney over all the clients accounts to do that. where are you located?

Nov 13, 2009 6:29 pm

Ambitious, you can do that, but as Maks said, you need POA.  I actually know of an RIA firm that manages individuals’ 401K accounts by logging into their company 401K acounts.  They only charge like 25 bips for that, and like 100 bips for regular account management.

Nov 13, 2009 7:03 pm

If you are going that route - go  But it doesn’t have the “full service”, ie. Check Writing, etc.

Nov 13, 2009 7:20 pm

Also, check your state rules. If you are going to manage just one or two accounts you may fall under the minims rules and not need to register.

I have seen some advisors who register at the fund companies also. IE you like Rydex funds, so you can hold funds there under your RIA name - eliminating the custodian.

Not sure about this part -Maybe Wet Blanket knows better- but isn’t there a differnce between POA and limited POA. I think you need full POA to have access to clients accounts under a non-custodian agreement. (which is another can of worms)

Lastly - if you are just looking for a custodian becasue you don’t have the AUM for some of the bigger names, firms like ThinkorSwim, and Interactive Brokers have programs to do just what you are trying to do.

Good luck!

Nov 13, 2009 7:32 pm


If you are getting paid to manage accounts in your home state, typically no matter the number of accounts, unless you are a CPA or it is in compliment to your professional service, you must register with the home state.

Once you are an RIA, alot of states like PA, let you manage up to 5 accounts there without a notice filing. Other states like TX, you must register even if 1 account, no matter if home state or not.

Managing logins for accounts is not only confusing.... but also you just handed yourself tons of potential lawsuits. Imagine how many seperate logins you will be required to store somewhere. What if your pc gets stolen? Imagine how many of those clients use the same logins for their bank of america accounts, mortgages, car payments, emails. etc.

Nov 13, 2009 11:20 pm

My bad - thanks for the clarification Maksim

Nov 14, 2009 4:45 am


no problem. I didnt look far enough up and I thought you were the original poster. I do agree with you, other option you can do is hold the funds at fund.

Yet another option, find a local RIA and be registered there as an IAR.

Nov 15, 2009 4:07 am

Thank you very much for the great answers,BTW Wet Blanket what is the benefit in going with more than any other online brokerage?

Nov 15, 2009 12:59 pm

I believe their trade costs are along the samelines if not better - but the main reason I like them is that you can buy to close options, if $0.05 or less, without charge.  So if you are running a naked put strategy, or covered calls, closing commisoins don’t eat at your yield.

  Overall I like them - but it could just be me.  I know a couple other people here love them as well.   Also, great service - ACAT rebates - and if you trade enough, they credit you for the cost of high speed internet monthly (up to a certain point).
Nov 15, 2009 10:33 pm

1.  I require change, so I can’t bring back the old avatar yet.  But I understand, when ppl change their avatar on this site, it throws me off.

  2.  Err, thanks.  It could be just that I keep my mouth shut about subjects I don't know.
Nov 16, 2009 4:00 pm

I’ve been mulling over ThinkorSwim some more, and came up with more pluses and minuses.

  Keep in mind that I'm not very familiar with the other discount brokers, but this is what I like.   When I was with my previous firm, and limited to having an account with them, it drove me up the wall with how restrictive they were on options.  Only option strategies allowed in IRAs were covered calls and puts to hedge.  They didn't do cash secured puts.   At thinkorswim you can do any option strategy in an IRA as long as it doesn't have unlimited risk.  You can do cash secured puts, but it has to be straight cash (not an equivilent) and I don't believe that they have a cash sweep option - so the cash doesn't earn extra while securing the put.   Their customer service is great - but the "perks" are limited.  They seem to be a strictly online trading platform - no check writing, no ACH (I believe), etc.  So if your clients want these - then go elsewhere.
Nov 16, 2009 9:38 pm

just my 2 cents, i have been using thinkorswim for about 2 years, one word: amazing. No really customer service is superb and the platform its the best i have seen. also they have ach and offer check writing at extra cost of course. As an advisor you may use their institutional platform as long as the account is 250k +, this one is a huuuge advantage if your actively investing. 

Nov 16, 2009 10:19 pm

Guess I was wrong about the ACH and check writing.