Trustees have a fiduciary duty and must know(1) the fees, commissions and expenses charged to assets in trust or fiduciary accounts. The new third party compliance FACE Audit™ helps trustees meet their fiduciary duty. The FACE Audit™ is appropriate for trustees who don’t have time or sufficient skills to gather, understand, calculate and evaluate the reasonableness(2) of FACE (fees, commissions and expense) amounts. Third party compliance audits are used in many different settings including for example, restaurant food safety.
Why it’s important for trustees to know and control fees, commissions and expenses
Knowing the costs charged to a trust or fiduciary account is not an optional or extra credit assignment for trustees. Trustees are required to know and control fees, commissions and expenses. No matter if or how a trustee knows; fees, commissions and expenses subtract from assets in trust or fiduciary accounts. Subtractions cause performance to suffer. Fortunately, these subtractions are very much controllable by trustees. Update February 2014. The SEC (Securities Exchange Commission) recently issued a notice to investors on the subject of fees, commissions, expenses, surrender charges, withdrawal fees, etc.
The good news and the bad news
Once a trustee decides to know the FACE they are in good shape. Certain fees, commissions and expense can be adjusted if need be. If the FACE Audit™ shows there’s a major problem, the faster a broker, financial adviser, financial planner or life insurance agent may explain or address them.
If trustee procrastinates on this requirement it can turn a small and very manageable issue into major drama because the dollar amounts in question usually grow into monstrous problems. It’s far easier to request and get a few thousand dollar adjustment than for example, a $55,000 adjustment. (Keep in mind I am not referring to individual investment or overall account losses).
FACE Audit™ – a “Christmas gift” idea for trusts
Today we celebrate Christmas by gathering together with our families. Most exchange gifts before eating then the focus shifts to the dinner table, sharing memories of Christmas’ past, new family additions, the departed, health issues and the sumptuous feast. Will your family have a good or divisive dinner table conversation this year, next year or in a few years? Why? Will siblings spar for attention and lobby for money? Will elders, aunts, uncles, cousins and in-laws jockey for favored positions at your dinner table? Are certain grandchildren spoiled or favored? Will the smallest slight become the spark for a future family trust dispute? Will the trust account be used (and viewed) to encourage, shift or force changes in beneficiaries’ lifestyles? Will those at your dinner table now become future adversaries, never to return again? The decision is entirely controllable by trustees.
There should be NO question, whatsoever in the mind or thought process of a trustee that beneficiaries and their spouses, partners are 1) somehow if not directly aware of a “pot of money”, 2) attach themselves emotionally to it and 3) mentally spend it or form expectations of their “due” from it unilaterally, independently and selfishly.
New advisers or trust officer assigned to cover your trust or fiduciary account?
1) Changes in advisers, teams or groups of brokers or planners and or 2) changes at firms (banks, brokerage firms formally referred to as broker dealers and trust companies or investment advisers) they work for can make gathering information more challenging and time consuming. Further discussions to understand fees, commissions and expenses must take place or a slippery slope risk of waste of trust assets can kick in. If after discussing your trust account fee structure if they can’t, won’t or don’t provide answers that make sense, it may be necessary to request it in writing or perhaps find a new one who will. And make sure the fees, commissions and expenses at the new one are fully documented BEFORE you make any investment or life insurance decisions.
(1) “Know” is related to but is not the same as words like think, hope, suppose, guess, estimate, believe, pray, hope the other guy or person does it, trust, delegated-to, set it and forget to check it or the most common and dangerous “assume” no matter how large, impressive the reputation of the individual, team, group or firm(s) that your trust is at nor how long the account has been there.
(2) A note about “reasonable” fees, commissions and expenses. Reasonable does not mean lowest. However, if amounts charged to a trust or fiduciary account, when compared to account performance, do not provide value, at some point (and the sooner the better) fees, commissions and expenses and performance must be discussed, understood and or adjusted.
There is NO escape for trustees – FACE Audit™ now or later
All trustees, at some point in time, have a duty to account (voluntarily, by statute or by a court order) for all fees, expenses and commissions to trust beneficiaries in addition to any and all trust investments, loans and other transactions. Trust beneficiaries can include charities like schools, colleges, universities, religious groups, hospitals and health care organizations. Inaccurate, untimely or incomplete trust accountings have led to many lawsuits for much larger amounts of money; because certain trustees didn’t take care of the fees, commissions and expense supervision and control.
FACE Audit™ fees are very reasonable and usually absorbed by your trust or fiduciary account
NOT paying attention now and taking care of the easy stuff, can wipe out a lifetime of gifts and wonderful family Christmas. Spending a small amount now, can be worth a pound of prevention later. And often result in a much better aligned (and lower) cost structure for trust or fiduciary accounts.
For more information info@fiduciaryexpert.com or (310) 943-6509
FACE Audit™ is a pending registered trademark of Chris McConnell & Associates
Copyright Chris McConnell & Associates 2013 all rights reserved
