Retaining Your Trusted Financial Advisor

What many clients don’t realize is that they may lose their trusted financial advisor when they become disabled, although it doesn’t have to be that way. Allow me to explain.

Assume that Jerry has a revocable living trust. He serves as his own trustee, and then ABC Trust Company is his named as successor trustee. Further, Jerry has a longstanding relationship with Lisa, his financial advisor. She works at XYZ Brokerage Firm. Lisa has been through the ups and downs with Jerry and his family, and Jerry has great confidence in Lisa.

If Jerry should become disabled and unable to make financial decisions, his successor trustee, ABC Trust Company, steps in and assumes the role of trustee. Because ABC Trust has the legal responsibility for all of the investment decisions, they will move all of the assets in the account from XYZ Brokerage Firm to ABC Trust Company.  This is common practice.

Sometimes, the Jerrys of the world don’t realize that’s what they’ve set up when they name a corporate (bank or trust company) as their successor trustee. There are alternatives. Some trust companies, for example, will serve only as the administrative trustee, and allow the investments to remain with the client’s preferred investment advisor. As administrative trustee, the trust company will write checks, pay bills and decide upon distributions. The investment advisor retains the assets in this scenario, and is responsible for the day to day investment decisions. This is possible due to “directed trust” laws that allow the liability associated with the different responsibilities to be bifurcated.

Florida enacted directed trust legislation so the ABC Trust Company, if they are so willing, can take on only the administrative role and allow XYZ Brokerage Firm to continue to manage the investments after Jerry resigns from serving as his own trustee. You should know, however, that these split duties don’t just happen. The attorney drafting the trust needs to be familiar with the directed trust laws and include the necessary language to segregate financial investment responsibilities from the distribution responsibilities. Not only must the trust be drafted correctly, but the trust company and the financial firm must both be willing to serve in their respective roles. Further, there should be a clear understanding on Jerry’s part as to what the charges and fees will be from both ABC and XYZ. Since the responsibilities are bifurcated, usually the fees are also divided.

Oftentimes, the financial firms will have required language that must be drafted into the trust instrument before they will agree to serve in the limited role provided. This required language commonly includes indemnification provisions that not only exonerate the trustee from the investment advisor’s actions (and vice versa), but also allows the trustee to use trust funds to defend itself if it is sued by the grantor or by a trust beneficiary.

Yet another common issue confronting investment advisors is a tug-of-war between the advisor and their own trust department. Suppose in my example with Jerry that Lisa, an advisor with XYZ Brokerage Firm advises Jerry that he can name the affiliated XYZ Trust Company as his successor trustee, and not worry about the assets moving if Jerry should become incapacitated or die.  When Jerry does become incapacitated, sometimes there is a struggle between Lisa and her brokerage firm against their own affiliated trust company over who manages the assets and gets paid to manage the assets. Some companies work well with their own advisors while others don’t. Then there is another issue as to how much the client gets charged. You don’t want to be charged full freight by both the advisor and the trust company in this example. If Lisa suspects that her trust company may step on her toes, she may look into affiliating with another company that will agree to perform the administrative tasks in a directed trust scenario.

Finally, there’s the issue of naming your spouse or children as successor trustee. In Jerry’s example, if he wants Lisa to continue on as his financial planner, he should express his expectations to whomever he names as his successor trustee. I’ve seen several children of clients move the client’s brokerage account to the child’s trusted broker and away from their parent’s broker when the child takes over as trustee.

So there’s a lot to think about when you name a successor trustee in your documents, including some very specific coordination with your long-term financial advisor. If this is an issue for you, bring it up with your estate planning attorney so that he can discuss it with the parties involved, and draft the appropriate language into your trust documents.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

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Craig R. Hersch

  • Senior Partner,
    • Sheppard Law Firm
  • Florida Bar Board Certified Estate Planning Attorney / CPA
  • Editorial Advisory Board Member,
    • Trusts & Estates Magazine
  • Founder & Board Member,
    • State Chartered Trust Company