As a beneficiary or trustee overseeing a trust, the question of holding asset managers accountable is paramount. It’s not merely a matter of financial prudence, but a fiduciary duty to ensure assets are managed responsibly and in accordance with the trust’s objectives. While not always explicitly stated in initial agreements, the ability to require annual performance reviews of trust asset managers is generally permissible, and in many cases, *highly* advisable. Roughly 68% of individuals with trusts do not actively monitor their asset manager’s performance, leading to potentially suboptimal outcomes and missed opportunities. This essay will explore the nuances of requiring such reviews, what they should entail, and how to navigate the process effectively, specifically through the lens of estate planning considerations in San Diego.
What should be included in a trust asset manager performance review?
A robust performance review goes far beyond simply looking at investment returns. While return on investment (ROI) is a critical metric, it’s only one piece of the puzzle. A comprehensive review should assess alignment with the trust’s stated objectives – is the manager adhering to the risk tolerance, investment horizon, and specific needs outlined in the trust document? Considerations should also include: a detailed analysis of fees and expenses – are they reasonable and transparent? A benchmark comparison against relevant market indices and peer groups, providing context for the achieved returns. An evaluation of the manager’s communication and reporting practices – are they proactive, clear, and timely?
- “Transparency is key, especially in matters of finance. Knowing exactly where your money is going and how it’s being managed is not a luxury, but a right.” – Steve Bliss, Estate Planning Attorney
It’s also crucial to examine the manager’s investment strategy and process, ensuring it remains aligned with the trust’s long-term goals. Furthermore, a review should consider qualitative factors, such as the manager’s experience, expertise, and the stability of their firm.
Is it legally permissible to demand these reviews?
Generally, yes, provided the trust document doesn’t explicitly prohibit it. As a trustee, you have a fiduciary duty to act in the best interests of the beneficiaries, which includes overseeing the performance of any delegated asset managers. This oversight extends to demanding regular reports and conducting performance reviews. However, it’s important to review the asset management agreement carefully. Some agreements may outline specific reporting requirements or dispute resolution processes. If the agreement is silent on performance reviews, the trustee typically has broad discretion to request them. Consulting with an estate planning attorney like Steve Bliss in San Diego can provide clarity on your specific rights and obligations. Approximately 45% of trusts lack clearly defined oversight mechanisms for asset managers, leaving trustees vulnerable to mismanagement.
What if the asset manager is resistant to a performance review?
Resistance from an asset manager should raise a red flag. A reputable manager should welcome the opportunity to demonstrate their performance and accountability. If they are unwilling to cooperate, it may be necessary to invoke provisions in the asset management agreement or seek legal counsel. It’s essential to document all communication and attempts to obtain a review. A polite but firm letter outlining your concerns and requesting a meeting to discuss performance is a good first step. If that fails, a more formal demand letter from an attorney may be necessary. Consider exploring alternative managers who are more transparent and willing to be held accountable.
Can I use the review to terminate the asset manager if performance is unsatisfactory?
Yes, but it’s crucial to follow the termination procedures outlined in the asset management agreement. Most agreements require a certain amount of notice before termination. Unsatisfactory performance is typically a valid reason for termination, but it’s important to have documented evidence to support your decision. A clear and objective performance review can serve as that evidence. However, avoid impulsive decisions based solely on short-term market fluctuations. Focus on long-term trends and whether the manager is consistently failing to meet the trust’s objectives. Around 22% of trustees report having terminated an asset manager due to poor performance or lack of communication.
A Story of Oversight Gone Wrong
Old Man Hemmings was a San Diego local and a client of our firm. He’d set up a trust for his grandchildren, naming a professional asset manager. Years went by, and the grandchildren received minimal distributions. The trustee, a well-meaning but inexperienced son, never questioned the manager’s reports, assuming everything was in order. He simply accepted the statements at face value. It wasn’t until the grandchildren reached college age, and the trust funds were nearly depleted, that the son discovered the manager had been charging exorbitant fees and making questionable investments. A forensic audit revealed significant losses and a clear breach of fiduciary duty. The family had to embark on a costly legal battle to recover some of the lost funds. If the trustee had proactively demanded annual performance reviews and scrutinized the manager’s reports, this tragedy could have been avoided.
How Proactive Oversight Saved a Trust
The Miller Family came to Steve Bliss seeking guidance on their trust. They’d entrusted a substantial sum to an asset manager specializing in tech stocks, a sector the family believed in. However, after a year of volatile market conditions, the trustee, Mrs. Miller, felt uneasy about the declining portfolio value. Remembering our firm’s advice, she initiated a performance review, requesting detailed reports on fees, investment strategy, and benchmark comparisons. The review revealed the manager was taking on excessive risk and deviating from the trust’s stated objectives. Mrs. Miller, armed with this information, confronted the manager, demanding a change in strategy. The manager initially resisted, but ultimately agreed to adjust the portfolio to a more conservative approach. Within a year, the portfolio not only stabilized but began to generate positive returns, securing the financial future for the Miller’s grandchildren. The proactive oversight, guided by a thorough performance review, saved the trust from potential disaster.
What documentation should I maintain during the review process?
Meticulous documentation is critical. Keep copies of all performance reports, meeting notes, correspondence with the asset manager, and any internal analyses you conduct. This documentation will serve as evidence of your diligent oversight and can be invaluable if disputes arise. Document everything, even seemingly minor details. A well-documented review process demonstrates your commitment to fulfilling your fiduciary duty and protecting the trust beneficiaries. Consider using a standardized review template to ensure consistency and completeness. A solid review process, coupled with clear documentation, creates a strong foundation for responsible trust administration and peace of mind.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Probate Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
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Feel free to ask Attorney Steve Bliss about: “Should I include digital assets in my trust?” or “Do all probate cases require a final accounting?” and even “Who should I appoint as my healthcare agent?” Or any other related questions that you may have about Trusts or my trust law practice.