Tony Novak profile picture
  "AskTony" column archive        


Most Popular

AskTony Archive

This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

The author is paid for product endorsements and has an ownership or other financial interest in the businesses related to the topics covered.

New questions

Submit consumer finance questions at and health insurance questions at

Sponsored by: Insurance Exchange - your source of valuable information on state and federal health reform benefits.

Core Health Insurance - America's favorite mini-med insurance  with affordable premiums, freedom to choose providers, optional PPO discounts and guaranteed eligibility regardless of medical conditions.

Please support the Web sites that make publication of AskTony services possible.

Broker/dealer vs. custodian

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: What is the difference between a broker/dealer and a custodian?

A: Both describe firms that provide investment services. Traditionally, broker/dealers were the brokerage firms that hire registered representatives, charge commissions or fees and pay representatives as employees or contractors. Investment custodians traditionally provided services for a fee, and do not pay their independent representatives. Nowadays the lines are blurred, and each type of firm provides some of both types of service. From an investor's perspective, both provide the same services. Both take your money and handle investment transactions on your behalf. From an adviser's perspective, these simply represent different business models. The legal distinction with regard to fiduciary responsibility may be the most significant difference. Broker/dealers maintain relationships with registered representatives and do not act as fiduciaries. The SEC now requires these firms to disclose that any advise they provide is incidental to the primary business of handling investment transactions. Custodians maintain relationships with registered investment advisers who must act in the best interest of their client. There is a fiduciary relationship between the investment adviser and the client, meaning that the adviser is legally obligated to act in the best interest of the investor client. Still confused? You are not alone. Financial advisers and investors rarely reflect an understanding of the distinction.


More resources: