All trust companies, including Garden State, are held to the “fiduciary standard”, but we don’t hold the monopoly on fiduciary services.
In May, the Securities and Exchange Commission (SEC) removed the word “fiduciary” from the mandated language registered investment advisors (RIAs) use in their customer relationship summary concluding the word is “legal jargon”. Based on survey feedback, they decided the required RIA disclosure language to be:
“When we act as your investment adviser, we have to act in your best interest and not put our interest ahead of yours. At the same time, the way we make money creates some conflicts with your interests. You should understand and ask us about these conflicts because they can affect the investment advice we provide you.”
The first sentence of the new disclaimer refers to the first and foremost requirement if your advisor is a fiduciary, the duty of loyalty, or putting the client’s interests above their own.
Garden State Trust Company acts not only as a fiduciary, but also as a trustee, which means that in order to fulfill our duty of loyalty to our clients, we have many other specific duties we are legally obligated to perform on behalf of our clients.
Here are some of the more common duties a trustee owes its beneficiaries:
- Duty to administer a trust by its terms. Every trust agreement should make plain the purposes of the trust, as they provide the critical benchmarks for evaluating the trustee’s actions.
- Duty of skill and care. A high standard of performance is required, even if an amateur is named who has no prior experience as a trustee.
- Duty to give notices. Notices may concern legal rights of the trust beneficiaries, such as a power to make withdrawals, or they may cover such ministerial matters as designating a successor trustee or an agent to assist in trust administration.
- Duty to account. A written accounting of the assets, liabilities, receipts and disbursements of the trust must be provided to the beneficiaries regularly.
- Duty of impartiality. The trustee must not favor one beneficiary over another, unless the trust document directs that providing for a particular beneficiary is a principal purpose of the trust.
- Duty to invest. Trust assets must not be left idle. In addition to making the trust investments, the trustee has a duty to diversify the investments and develop an asset allocation plan. This is a job for professional investors or corporate fiduciaries.
- Duty of confidentiality. Normally, the terms of a trust, the identity of its beneficiaries and their respective interests, and the nature of the trust assets cannot be disclosed to anyone except the beneficiaries and those who need such information in order to be able to administer the trust.
The word “fiduciary” may be legal jargon; however, we take pride as a trustee in our duty of loyalty to our clients and being legally bound by it. The new disclosure language switch doesn’t preclude RIAs from using the term “fiduciary”, which we believe many will continue using to differentiate themselves, as it is the highest legal standard that a financial service provider can be held to.
Interested in learning more of the duties of a trustee; or the difference between Garden State Trust Company’s financial services and ordinary investment accounts?
Let us know!
