Trusts are an important part of many estate plans and family wealth preservation arrangements. As the rest of the investment industry has evolved, not always in a positive direction, in my opinion, trusts have also evolved. But their roots are embedded in centuries of common law, and are related to another subject that is dear to me, fiduciary duty.
One of the most thoughtful leaders in the wealth management industry, Gregory Curtis, Chairman of Greycourt, has published “White Paper No. 48: Best Practices Trusts” with Greycourt Director Thomas Moore, in which they describe the history of trusts and their recommendation of “best practices.”
Greycourt is among a group of family office thought leaders that urged Congress to “fight for investors and put the fiduciary standard in Wall Street reform” in the run-up to the Dodd-Frank legislation. Greycourt and Curtis were signatories of a Fiduciary Statement developed by The Committee for the Fiduciary Standard, of which I am a member.
At the heart of the matter is that the commercial “trust business," like so much else that has evolved in modern banking and brokerage, “is operated almost entirely for the benefit of the banks, rather than for the benefit of the beneficiaries,” according to the Greycourt paper.
For many investors, that is the frustration in dealing with many large financial institutions now—and it is felt more acutely since the mid-1990s and the repeal of Glass-Steagall.
Calling the current situation with trusts “hopeless and infuriating,” Curtis and Moore recommend what they call the “best practices trust” which would unbundle the trust from a large bank or trust institution, many of which, they say, use “decades-old” technology, and in terms of asset management, “corporate trustees are not merely not ‘best in class’ money managers, they are mostly ‘worst in class.’”
Instead, they recommend putting together the “best practices trust” using the best quality providers that the advisory firm gathers, vets and establishes. In this way not only do clients get a better set of providers but better, negotiated (and competitive) fee structures, “no conflict of interest,” they write in the paper, which is worthwhile reading.