When we save money, we put it in the bank. This is because it is 1) more convenient to access our funds than putting it in one place, 2) safer than leaving it at home, and 3) in hopes we may get a certain interest return.
If we think about it, we are entrusting the bank with our money. However, we all know that we shouldn’t just save our money, we should also invest it, to beat inflation and grow our retirement nest egg.
When we invest, we don’t actually hold the securities or assets physically. Similar to entrusting the bank with our money (regardless of where we earn or receive it from), we entrust a financial body or institution to hold our investments (regardless of which broker or platform we invest with).
Even though we may invest in stocks via our brokerage firm, embark on a monthly investment scheme with robo-advisory platform, put our funds with P2P-lending platform or invest with other platforms, we will ultimately have to keep our investments with a financial institution.
There are a few main types of financial institutions that we can trust to hold our investments – Central Depository (CDP), Custodians, and Escrows.
Here’s what each of them are.
Central Depository (CDP) Account
The Central Depository (CDP) is a wholly-owned subsidiary of the Singapore Exchange (SGX) that provides integrated clearing, settlement and depository services for a wide range of investments in the Singapore Securities Market.
When we invest in SGX-listed companies, exchange traded funds (ETFs), bonds and other securities, we can store them in our CDP account. Of course, to do this, we also need to have a brokerage account to buy and sell the investments.
We can also store our Singapore Government Securities (SGS), including SGS bonds, Treasury bills (T-bills) and the Singapore Savings Bonds (SSBs) in our CDP accounts.
SGS bonds are listed on the SGX after its initial issuance, which means we can buy and sell it on the secondary market, with a brokerage account. T-bills, while also stored in our CDP accounts, can only be bought and sold on the secondary market via the three local banks (but not via brokerage accounts). Lastly, our SSB investments cannot be bought or sold, but can be redeemed, are also stored in our CDP accounts.
A custodian account is an account, administered by a financial institution, that holds securities investments on our behalf. These financial institutions tend to be large and reputable firms that we trust to safeguard our investments.
Most commonly, we may come across custodian accounts when we invest in stocks. This is because most of the brokerage firms in Singapore offer their own custodian accounts, with more competitive trading fees and charges, for us to store our investments with them.
For overseas-listed stocks and on regular shares savings (RSS) plans, we generally need to store our investments in a custodian account with the brokerage firms. Our brokerage firms, if it is a CDP Approved Depository Agents, would typically also maintain a sub-account with CDP on our behalf.
Another way many of us come to own custodian accounts is when we invest via robo-advisory or other investment platforms. While popular robo-advisory platforms such as Endowus, MoneyOwl, StashAway, AutoWealth and Smartly, offer a compelling and contemporary investment solution, they do not store the underlying investments.
To add further credibility to their solution, they work with reputable and established custodian service providers which give us greater peace of mind, knowing that our investments are safe regardless of what happens to a robo-advisory service provider.
|No.||Robo-Advisory Platforms||Custodians They Use|
|1||Endowus||UOB Kay Hian|
Saxo Capital Markets (Securities)
|4||AutoWealth||Saxo Capital Markets|
|5||Smartly||Saxo Capital Markets|
|5||FSM MAPS||iFAST Financial|
In the scenario the robo-advisory platform that we are investing with shuts down or goes bankrupt, our investments are still safe, residing in our custodian account. We can simply go to our custodian account providers to execute any trades we want on our behalf. Even in the scenario both our custodian account providers shut down or go bankrupt, our assets reside separately from their assets, and will still belong to us.
As other types of investment platforms may also use custodian accounts, we should verify the firms behind the custodian accounts. We can look up the Financial Institutions Directory (Capital Markets) on the Monetary Authority of Singapore (MAS) website.
Escrow accounts allow us to hold assets with an third party. In this case, there is an independent entity to ensure that investors’ funds are only used in accordance to agreed upon conditions.
This is especially relevant for those investing in Peer-to-Peer (P2P) schemes, offered by Funding Societies, Capital Match, MoolahSense, SeedIn, Minterest, CoAssets, Validus and other P2P companies, as they use our investments to lend to other companies for a return.
With an escrow in place, they typically do not handle our funds. Rather our funds sit with the escrow, and are used to lend to companies. On the other hand, companies also pay the interest and capital to the escrow to ensure that the funds are channelled to the lenders, and not managed by the P2P companies.
In this case, investors are assured that even if the P2P platform that we use go under, our funds remain safe. We can also check whether the escrows are licensed trust companies on the MAS website.
|No.||Peer-To-Peer Platforms||Escrow Companies They Use|
|1||Funding Societies||Vistra Trust|
|2||Capital Match||Watiga Trust|
|3||MoolahSense||Does not specify|
|5||CoAssets||Does not specify|
These Accounts Are Safeguards For Investors
Whether it is the CDP account, custodian account or escrow account, they are there to protect investors. This is why it is imperative that investors do their parts to protect their funds, but checking on the MAS website, asking the relevant companies questions to clarify their doubts, and understand the investment risks that they are taking on.
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