Shine-Vernon Legal Team: Fund Manager of Schwab Yieldplus Fund (Swysx) and Schwab California Tax Free Yieldplus Fund (Swycx) Deceived Retirees With Assurances of Safety

QUESTIONS TO ASK WHEN INTERVIEWING A TRUST COMPANY

Selecting a trusted company is an important personal decision. Trust companies should combine conscientious client service with financial strength and significant expertise. Since trust companies are government regulated, it’s possible to inquire what ratings they received on their most recent audit.

To protect yourself from the less qualified and less ethical Trust companies, you may want to pose these additional questions when interviewing trust companies:

Investments

  • How will my portfolio be structured?

The investment industry consistently contends that asset allocation is the single most significant factor in determining potential returns. Trust portfolios should be properly allocated among and diversified within equities, bonds, cash, and other assets to reduce risks. It’s prudent to select asset classes and assets within those classes whose returns are not affected in the same way by market conditions. It’s especially important when you are dealing with a Trust company to place extra emphasis on protecting the corpus of the portfolio, for example protecting protection, beyond allocation and diversification strategies. In essence, Trust companies should be designed to manage existing wealth rather than engage in strategies designed to create wealth or otherwise place existing wealth at risk.

  • Does your company accept soft dollars?

Soft dollars include fees charged or excess fees charged on securities trades, monies that may be used to purchase research, or additional services paid by funds or money managers to the Trust company or one of its affiliates. Soft dollars create a conflict of interest in that they motivate the Trust company to promote and deal with funds and money managers who provide soft dollars rather than funds and money managers who may be the best choice for you.

  • How does your company structure its management fees?

Compensation is typically based on the market value of account assets. However, the percentage charged varies and, over time, high fees can significantly reduce your returns.

  • Will my portfolio include mutual or proprietary funds?

Both types typically include embedded fees over and above the percentage “fee” that is charged based on the market value of your portfolio.
Understand whether your portfolio will be structured with individual securities or mutual funds, as the latter could increase the costs of managing your portfolio.

As with soft dollars, proprietary funds, meaning funds managed by the Trust company or one of its affiliated companies, create a conflict of interest in that they motivate the Trust company to promote proprietary funds rather than funds and money managers that may be the best choice for you. There are other potential problems with proprietary funds as well. For example, discuss whether the proprietary funds are capable of being transferred in-kind if you move your account to another trusted provider, or whether the shares would be liquidated – possibly in a declining market.

Trust/Estate Administration

  • Are my assets handled locally?

It’s not unusual for trust companies to segment their service delivery models by asset size. This practice means that if an investor’s asset levels decrease, their relationship could be reassigned to a central service center. Inquire as to what size assets are required to receive local contact and management.
Since many trust companies separate their trust administration and estate settlement divisions, the death of a client may also result in the transfer of an account relationship. Determine if your family will be working with the same advisors after your passing.
What is the education and experience of your trust officers?

Ask for general information, such as experience levels, but also specific details, including education and whether the officers attended trust school. You may also question if the trust officers are Certified Trust Financial Analysts or Certified Financial Planners.

  • Does your company charge distribution fees?

Corporate Trustees routinely make discretionary distributions from trusts. However, some trust companies assess a distribution fee as part of these payments. This fee isn’t necessary, and since it’s often one percent of the distributed amount, it can quickly become expensive.

  • What if my beneficiaries wish to select another trustee?

When a beneficiary or co-trustee is not satisfied with investment performance or the service provided by their corporate trustee, they might have the right to remove the trustee and appoint a successor. As part of this process, many trust companies charge a termination fee of one to two percent of the assets’ market value. Avoid these unnecessary fees by carefully reviewing the provider’s fee agreement.

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