The Trustee’s Compliance Library

Trustees and beneficiaries don’t always see eye-to-eye on issues of trust administration and governance.  For the most part, the reasons for these disagreements are divergent beliefs about responsibility, duty, fairness, and transparency. Then the attorneys are called and nobody wins. At the heart of all of these conflicts is a single issue–did the trustee act prudently and in good faith? Central to litigating this issue are the questions (1) what is the trustee’s job, and (2) what evidence exists that they did their job?

The job description for a trustee is found in several places: (1) in the trust document itself; (2) in the state’s statute that adopts the Prudent Investor Act; and (3) in the court’s historical interpretation of what the statute means.  At the initiation of any occupancy of the trustee’s office, the successor trustee will create a record of the duties of care they owe to the trust beneficiary. This document would reasonably be the first document in the compliance library.

Besides the recitation of the trustee’s duties of care, the compliance library would also include an “Investment Governance Statement” (IGS) which memorializes a series of policies and procedures that the trustee has adopted to fulfill the elements of their job description. (This IGS document should not be confused with an Investment Policy Statement which is drafted by the investment manager for their own purposes.)

By establishing this series of policies and procedures and creating a record that they have been executed according to an established compliance calendar, the trustee has an evidentiary record that demonstrates they have acted prudently and in good faith. To be sure, the attorney for the disgruntled beneficiary will argue that another trustee might have reached a different conclusion than this trustee reached. But that is not the standard by which trustees are judged. Prudent fulfillment of their duties is the standard.

Following is a list of 13 duties that are informed by the Uniform Prudent Investor Act and court interpretation of that statutory framework:

  1. Duty to establish a return objective – §16047(b)
  2. Duty to establish a risk expectation – §16047(b)
  3. Duty to consider economic conditions – §16047(c)(1)
  4. Duty re measurement of total return – §16047(c)(5)
  5. Duty to establish a contingency plan – §16047(a)
  6. Duty re diversification – §16048
  7. Duty re paying only fair fees – §16050
  8. Duty re conflicts of interest – §16047(d)
  9. Duty re alternative investments – §16047(d)
  10. Duty re liquidity – §16047(c)(7)
  11. Duty re investment advisor selection – §16052(a)(1)
  12. Duty re investment advisor delegation – §16052(a)(2)
  13. Duty re investment advisor monitoring – §16052(a)(3)

For a deeper dive on several of these duties and procedures to fulfill them, following is a link to a white paper we have written:

Onward,

Josh Yager, Esq., CFP®, ChFC®
805-899-1245
jyager@anodosadvisors.com

 

Anodos helps trustees (ERISA, individual, and endowment) save time, reduce their personal risk, and fulfill their fiduciary duties.  We do this by helping the trustee conduct audits of the money managers to whom investment duties have been delegated.  Fiduciaries have an affirmative duty to provide ongoing and independent oversight of the money managers.  What makes us unique is that we do not manage money or sell insurance.  Doing fiduciary audits, benchmarking studies, and performance attribution is all we do. 

Anodos-is

We do what trustees should do, but don't know how

Anodos develops and maintains an investment governance process for trustees so that their fiduciary duties are fulfilled.