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As an independent, qualified custodian, we understand our role is different than that of a third-party administrator (TPA). However, we’re often asked the difference between a custodian and an administrator.
Here are six important differences between custodians and administrators.
- Custodians are subject to federal or state regulation. Regulators must review the financial and operational stability and compliance of custodians.
- Custodians are approved by the IRS. Custodians receive IRS approval due to being subject to the supervision and examination noted above.
- Custodians must comply with IRS and DOL statutory requirements. Via administrative reviews, value reporting, and other requirements, custodians must adhere to statutory requirements for the benefit of their clients.
- Custodians must comply with BSA/AML, OFAC, CIP and Patriot Act rules and requirements and must provide annual training on these topics. Custodians must comply with and train on certain rules and requirements to identify potential money laundering, identity theft and so on.
- Custodians must maintain a comprehensive insurance package and disaster recovery plan. Whether for employee error or dishonesty or disaster recovery, custodians must maintain insurance safeguards for client protection. They are also required to maintain such an emergency preparedness plan to resume normal operations as quickly as possible.
- Custodians may hold investment assets and uninvested funds. An administrator must work with a custodian in order to be permitted to hold client assets or funds.
While the above is not a comprehensive list, it should give you an idea of some of the key differences. Oversight, compliance and client protection are three areas in which custodians have far more rules to abide by than administrators. And for good reason!
Ultimately, federal law requires all retirement accounts have an approved custodian.
Because TPAs are not directly regulated, they may be able to avoid some of the important requirements mentioned above. While they may perform the same or similar services as a custodian, TPAs must work with a custodian to be a “full-service provider.” Administrators aren’t required to meet IRS requirements, aren’t approved by the IRS and aren’t required to be regulated by a federal or state regulator. Plus, only a custodian is given authority to hold title to client assets or hold clients’ money.
When considering whether to go with an administrator or a custodian, know the key differences and why they’re important. If you’re interested in Kingdom Trust serving as custodian of your retirement account, contact Client Services today to get started!