Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

The correct choice highlights that a custodian is an entity responsible for safeguarding and managing financial assets on behalf of another party, ensuring that the assets are managed in accordance with the best interests of the account holder. This role involves not only the physical protection of assets but also the responsibility to execute transactions and keep accurate records, all while adhering to the legal and fiduciary obligations to act in the best interest of the client.

In contrast, a fully disclosed firm refers to firms that provide their clients with complete transparency regarding the activities being undertaken on their behalf, but they do not inherently carry the fiduciary duty embedded in the role of a custodian. An investment company is typically a corporation or trust that pools funds to invest in securities; it does not manage accounts on behalf of another individual or entity. A unit investment trust is a type of investment vehicle that holds a fixed portfolio of securities and is designed for a specific term; it doesn’t manage assets in the same way a custodian would for an individual or institution. Thus, the defining responsibilities of a custodian align perfectly with the question’s criteria of acting in the best interests of another party.