A Trustee’s Duty to Independently Monitor Investment Advisors

“A trustee shall exercise reasonable care, skill and caution by periodically reviewing the agent’s actions in order to monitor the agent’s performance and compliance with the terms of the delegation” – Uniform Prudent Investor Act §9(a)(3).

Many trustees implicitly trust the investment advisor to whom investment duties have been delegated. They trust that the advisor’s strategy is reasonable. They trust that the return the advisor produced was reasonable given the level of risk that was taken. They trust that the benchmark the advisor is comparing himself against is fairly established. They trust that the advisor’s fees are fair. They trust that the advisor’s representation of being “above average” is supported by facts.

This kind of trust may be good enough for some, but for trustees it is not. Few trustees have any evidence – other than what their investment advisor says – that the trust assets are reasonably invested. Trustees are obligated by the Prudent Investment Act to make their investment decisions based on something more than trust. They are obligated to find the facts and record the basis for the confidence they put in the investment advisors they have decided to use.

However, conducting this level of review requires an insider’s knowledge of the investment industry. It requires experience to ferret out the facts from the promotional claims. It requires a disciplined investigation that few trustees are equipped to conduct. In short, it is hard to establish the facts upon which the fiduciary’s trust is placed. We know that a trustee’s job is hard, but though it is hard it does not absolve them of responsibility.

Anodos acts like a Chief Compliance Officer for trustees of all types: individual trustees, ERISA trustees and foundation/endowment board members. We develop and maintain for our clients a fiduciary governance process that fulfills their oversight responsibilities. Because we do not sell insurance, manage money, or receive referral fees from any sources, our governance work is truly unconflicted.

Please email or call me if you would like more information about how we do this work and how it may apply to you or your clients’ needs.

Josh Yager, Esq., CFP®, ChFC®, CLU®

Josh Yager

Josh Yager

Josh is Managing Partner at Anodos Advisors and a licensed attorney. Josh is a recognized content expert on the issues of fiduciary duties relating to the management and oversight of trust assets.

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