The Seven Benefits Of A Corporate Trustee

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If you have a trust, you likely have named yourself as the current trustee and your spouse or partner as the co-trustee. If you were to become incapacitated or die, your spouse or significant other would then serve as your successor trustee. But what do you do in the case where you or your successor trustee are not comfortable or capable serving in that role? An alternative is to name a corporate trustee. A corporate trustee is simply a trustee that is a professional institution/corporation instead of an individual.

The following are the key benefits of naming a corporate trustee to serve as the acting trustee, the co-trustee or the successor trustee of your trust:

1. Experience

The trustee of a trust is responsible for administering the trust account, ensuring the safekeeping of any assets in the trust, record keeping, accounting, monitoring and initiating distributions as outlined in the trust, coordinating and preparing tax documents, monitoring the investment manager of the trust assets and paying bills. A corporate trustee performs all of these tasks on an ongoing daily basis for perhaps hundreds to thousands of different trusts. Thus they have the capability, know-how, professionalism and process in place to handle these tasks if you or your proposed individual trustee does not have that same comfort or experience level.

2. Objective

A corporate trustee will follow the trust instructions exactly as they are described within the trust. This is part of their fiduciary responsibility to the grantors and beneficiaries of the trust. This avoids potential conflicts of interest between family members. I have seen numerous occasions when family all seem to get along until you put monetary assets in front of them. Some family members feel more favored then others and sometimes decisions are not always made that are in the best interest of the person they should be financially providing for.

3. Fiduciary Responsibility

Similar to a NAPFA Registered Financial Advisor, a corporate trustee has a fiduciary responsibility to any grantors (you, spouse or partner) and any beneficiaries of the trust. This means they must put your interests before their own. It is the highest level of trust, loyalty and care available in the financial industry.

4. Perpetual Life

A corporate trustee is typically a corporation with an ongoing time horizon. It will not become sick, incapacitated, or pass away while serving as your trustee.

5. Flexibility in Role

You can outline in your trust the exact role you would like the corporate trustee to fulfill. A corporate trustee can serve as the acting trustee, a co-trustee or the successor trustee.

6. Peace of Mind

Relieving your family and friends of the trustee burden will not only provide peace of mind to them, but also to you.   Knowing that your financial affairs are being handled in the most efficient and prudent manner with a professional team of administrators and advisors is many times well worth the cost of the service.

7. Coordinate With Your Financial Advisor

There are generally two types of corporate trustees: 1) those that serve solely in the administrative trustee role and 2) those that additionally manage the trust assets. If your financial advisor has a comprehensive understanding of your financial situation and they are already managing your portfolio, then you may want to consider hiring a corporate trustee that serves solely in the administrative role.   If you are working with a financial advisor affiliated with NAPFA, then the benefit to you is that you potentially would have two fiduciaries working as a team on your behalf, your investment strategy would not need to change and your accounts would not need to transfer when a trustee change is ready to be made.

How Do I Find A Corporate Trustee?

Your financial advisor and/or estate planning attorney are typically a good referral source for locating a qualified corporate trustee. Many financial advisors provide ongoing comprehensive financial planning, including advice regarding estate planning, and thus have a network of qualified referral sources to meet your specific needs.

How Do I Choose A Financial Advisor?

We believe that when choosing a financial advisor you should consider the following attributes:

1. Choose a financial advisor that is also a Certified Financial Planner (CFP®). This is considered the premier designation in the financial industry. A financial planner with this designation has passed a 10 hour board certified exam, has 3 plus years of financial planning experience and has an undergraduate degree. The curriculum for a Certified Financial Planner is based on comprehensive financial planning including many disciplines such as: investment planning, retirement planning, tax planning, insurance planning, estate planning and college planning.

2. Seek a Registered Financial Advisor that operates under a Fiduciary Standard vs. the brokerage industry’s suitability laws. A Fiduciary Standard is the highest legal standard of care available in the industry. See our article regarding “What is a Fiduciary and Why Does it Matter” for more information.

3. You should seek a financial planner that is compensated in a fee-only manner vs. one who sells financial products, insurance or annuities for commissions. See our article titled “What is the difference between Fee-Only versus Fee-Based?”, for more information on financial advisor compensation systems.

4. Choose someone experienced with clients similar to your type of financial situation.  Ask the advisor what their typical client is like, profession, total assets, life situation, advice needed, etc…

5. A financial advisor should be independent and not affiliated with any particular company or financial products. An independent financial planner has the ability to recommend what is in your best interest, not that which provides them with the highest commission.

6. Keep interviewing advisors until you find one that you feel you can trust. Hiring a financial advisor is a big decision and your financial future is at stake. Your relationship with your advisor should be based on trust and comfort.

7. Ask for a copy of your financial planner’s code of ethics to ensure their interests are the same as yours.

8. Beware of any promises made regarding performance or statements made regarding the ability to greatly outperform markets.

9. Ask your advisor if they are willing to put their fee structure, recommendations and any disclosures in writing. If not, that should raise a concern.

What is a Fiduciary and Why Does it Matter?

You may be reading this article if you are looking for a financial advisor but not quite sure which one to choose or what issues to consider before hiring one. A good starting point is to determine if your potential financial advisor is working under a fiduciary standard and legally bound to act in your best interest, or if he/she is working under a suitability standard, which is considered a lower standard of care.

Fiduciary standard of care versus suitability standard of care

The words “fiduciary” and “suitability” may be new to you, so let me provide you with an overview of each term as it relates to your investments and overall financial well-being.

Core ValuesIn the financial advice industry, the fiduciary standard is considered the highest level of care a financial advisor or financial planner can operate under. Under the fiduciary standard, your financial advisor has a duty of loyalty and care to you, is required to legally act in your best interest, and must put your financial interests above his or her own. This is similar to the same legal level of care you would expect from your doctor, lawyer or CPA. In addition, if there are any conflicts of interest, they must be disclosed in writing, along with any fees or compensation.

The fiduciary standard is aligned with Registered Investment Advisors (RIAs) who are licensed under the SEC or in their state of business. RIAs are governed under the Investment Advisors Act of 1940.

In contrast to the fiduciary standard, the suitability standard means a financial advisor can provide advice and financial products that are considered suitable for you based on a basic understanding of your financial situation. One of the key defining differences in this definition is that “suitable” means there could be better investment options, but what is being recommended to you meets a suitable or reasonable solution. For example, the financial advisor may have access to investment options that are lower cost, better diversified or pay a smaller commission to the advisor, but the advisor could choose to recommend the investment option that pays him or her a higher commission as long as the investment product was deemed suitable for your financial situation. I think you can see the potential conflicts of interest that could exist in such a scenario. Whereas the fiduciary standard requires that a financial advisor eliminate any conflict of interest, or at least disclose any conflict of interest in writing, the suitability standard has no such requirement.

Commonly financial advisors that are aligned with a broker-dealer and practice under the suitability standard are stock brokers, insurance agents or may work at a bank. They are licensed under a different governing body called FINRA.

How do I determine if my financial advisor is acting under a fiduciary standard or a suitability standard?

  1. The easiest way is to ask them directly. Will you be acting under a fiduciary standard of care and are you willing to put that in writing?
  2. Are you a Registered Investment Advisor (RIA)? Can I see your form ADV? The form ADV is the regulatory document under the SEC or their state of business that provides an overview of their RIA firm, services to be provided, fee structure and discloses any typical conflicts of interest.
  3. Another option is to ask them what types of securities licenses they hold. A financial advisor providing advice as a fiduciary is licensed as an RIA under the Series 65 license. A registered representative selling financial products under a suitability standard is typically licensed under a Series 7 (stock broker’s license) and/or Series 6 (mutual fund and variable annuities) license.

What about the new fiduciary regulation that was to go in effect on April 1st 2017?

Due to great consumer demand for working with a fiduciary, the Department of Labor created a law that was to go in effect beginning April 1st 2017 that would require all financial advisors working with IRAs or retirement accounts to provide advice under a fiduciary standard. Many are calling this “fiduciary lite” as it was not quite as stringent as the fiduciary standard that RIAs currently operate under. However, it was a much needed step in the right direction for the financial services industry. Unfortunately, the new presidential administration requested a hold on this new law and asked that it be further reviewed before being implemented. At this point we don’t know if it will be delayed for only a period of time, face changes prior to implementation, or be completely eliminated altogether.

So where can I find a financial advisor or financial planner that operates as a fiduciary?

The good news is there is a great option currently in existence that will allow you to work with a fiduciary based financial advisor – The National Association of Personal Financial Advisors (NAPFA), or www.NAPFA.org. On their website you can search nationwide for a financial planner that is near you. In full disclosure, I am also a member of NAPFA. One of the great things about NAPFA is all financial advisors that are affiliated with this organization proactively chose to act as a fiduciary for their clients. Not only do they act as fiduciaries, but they are also fee-only and do not sell any commissioned financial products. For more information on types of financial advisor compensation, please see my article titled “What is the Difference Between Fee-Only and Fee-Based?”

In conclusion, if you want unbiased and transparent financial advice, then consider working with a Registered Investment Advisor that holds themselves out as a fiduciary and is willing to put that in writing.