A small section in the Office of the Comptroller of the Currency’s (OCC) Comptroller’s Handbook on Investment Management, released in August, provides advisors with a peek into the criteria national banks use when selecting an investment manager or independent investment advisor to advise a fiduciary account.
The three-page Appendix F, called “Guidelines for Selecting Investment Managers and Advisers,” says that at a minimum, a fiduciary manager should obtain full information on an investment firm’s investment and business approaches, professional resources, financial strength, historical performance, regulatory history, personnel turnover, comparative fees, and other relevant factors. Advisors can download the OCC handbook for free by logging on to http://www.occ.treas.gov/handbook/amgt.htm.
“Bank affiliated advisors will have the greatest interest in it [Appendix F],” says John Baker, a securities lawyer with the law firm Stradley, Ronon, Stevens & Young in Washington, D.C. “But [when] a national bank is selecting an investment manager or independent investment advisor to advise a fiduciary account, this is what the bank is going to be looking for. So I would think that even if [an advisor] doesn’t have any affiliation with a national bank, but [they'd] like their business, which is a pretty substantial portion of the investment advisor community, that even though the [OCC] book as a whole may not be much of interest, the Appendix will be.”
The Appendix warns national banks–which are regulated by the OCC–to obtain as much information as possible because, “Problems arise not when a fiduciary has done too much, but when it has done too little.” The OCC recommends that fiduciary managers seek advice, if necessary, from other experts and consultants in the field before choosing a third party, and interview several firms before making a final decision. Also, the OCC says the due diligence process should be thoroughly documented and reviewed by appropriate risk managers prior to executing a contract with a third party.