The Basics: Custody
Matthew Sullivan
May 14, 2019

If you were to “Google” the actor Chris Evans you will quickly learn that he stars as Captain America in a number of superhero movies. If you look to see what other movies he has been in you will come across a film called “Gifted”. Without spoiling the movie, Chris plays the uncle of a little girl and ends up in a custody fight with her grandmother. We have all heard of, or perhaps been part of a custody situation. The question always seems to be: “Who gets the kids?” The movie brings to the fore another very important question: “Who has control of the kids?”

Now let’s think about your investments, your cash and your securities. You should know the answers to two very similar questions: “Who has your investments?” and “Who has control of your investments?” This will tell you who has “custody” of your investments.

The bank holds your cash and your securities. Therefore, the bank has custody. However, the bank does not have control of your investments. The bank processes instructions they receive from the parties that have control over the account.

Describing “control” of your investments can be a complicated topic. To keep this as straightforward as possible, we’ll break this into two categories: “total control” and “limited control”. Naturally, you have total control of your own investment account. You can instruct buys, sells, deposits, withdrawals, transfers, etc. Anyone with total control is considered to have custody. You can give someone other than yourself custody of your account which means they can send your cash and securities to a third party. A conservative example, you give your advisor standing instruction to pay your cell phone bill every month out of your investment account. A liberal example, you give your advisor complete control to send cash or securities anywhere at any time. In both examples the advisor has degrees of control over your account; the advisor has custody in both examples. While most investors will never have a problem granting custody to their investment professional, it is this type of operating model where you can easily find stories of an investment professional getting into trouble by improperly moving client money.

“Limited control” is different. Giving Contravisory limited control of your investment account allows us to buy and sell securities for you. Contravisory may also receive the authority to make first party transfers, meaning we can only direct cash or securities to be sent directly to you. For example, if you had an individual account we could instruct the bank to send a check payable to you. This check could only be mailed to the address formally recognized by the bank as your address of record. This describes how Contravisory does NOT have custody - we cannot move your assets to anyone other than…you.

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