Using fewer custodians, when possible, can also help to streamline authorizations and the verification process itself. "We have only one custodian, which makes life simple," says David Edwards, president of Heron Financial Group LLC, a New York-based registered investment advisor.
The single relationship makes it easier to monitor whether the firm's accounting matches the custodian's, he says. "If they don't reconcile, we have time to find out why." Causes of those discrepancies are usually minor, such a new mutual fund investment that the firm must add to the client's portfolio report.
"The last thing I would want to do is send out letters to my prime brokers on the first day examiners walk through the door," says Champ, former general counsel to Chilton Investment Co., an investment advisor and hedge fund manager. "I would rather get it ahead of time."
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