Finance

How to Select a Global Custodian

By Roger Fishwick Director, Ratings Thomas Murray Introduction There are several alternative methods of selecting a global custodian, each with its own strengths and weaknesses. Over the last ten years, the process of selecting custodians to support large institutions has become increasingly based on the structured search method in the UK and parts of Europe. However, the custodian selection business is still in its infancy compared with the selection of fund managers by investment institutions. The custody world continues to develop and Thomas Murray is using internet technology to support the selection process, and is working towards formally and publicly rating the service capabilities of custodians. Alternative Selection Methods The main methods used by institutions to select a global custodian are: • • • • Name recognition/custodial asset size Recommendation/industrial surveys or word of mouth Structured search Custodian ratings

Each selection method has its advantages and disadvantages. These are as follows: Name Recognition/Custodial asset size Advantages: • • • • Low cost approach ‘You can’t be fired for buying IBM’ A large custodian is likely to have existing clients with requirements similar to your own Size may mean economies of scale, so competitive fees

Disadvantages: • • • No assessment of custodian capabilities, strengths and weaknesses No certainty that your particular service requirements can be met Difficult to demonstrate objectivity and due diligence

Recommendation/industrial surveys Advantages: • • • Low cost approach May be a reflection of real client experience Regular surveys may demonstrate trends in custodian performance

Disadvantages: • • Surveys and recommendations may reflect other clients experience whose service requirements differ from your own Surveys tend to be perception-based and linked to the quality of and relationship with the customer service representative

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