Trustees’ Fiduciary Liability

Fiduciary Exposure for Trustees, ERISA Plan Sponsors, Non-profit, Foundation & Endowment Board of Trustees and or Members of Investment Committees

Trustees are investment fiduciaries and serve voluntarily as the “ultimate managers” of private trusts, ERISA pension, profit sharing and 401k plans; charities, tax exempt, IRS code 501(c)-3 non-profit organizations, including foundations and endowments. Courts have routinely found these individuals bear personal responsibility.

Securities-licensed stockbrokers, financial advisers, SEC or state-registered investment advisers, trust officers, private bankers, wealth managers, insurance and annuity agents, real estate agents, unlicensed investment professionals and CPA’s, Accountants, Bookkeepers, Personal Care Givers (and or their employers), Business managers and Attorneys occasionally drift negligently or intentionally into the zone of fiduciary liability.

What matters is the ambit of the services promised or represented, actually provided and functions performed or not by individuals and or institutions on behalf of a trust or ERISA pension, profit sharing or 401k, a 403b plan; charity, foundation or endowment or an account that bears the hallmarks of a fiduciary relationship. In the ERISA arena, liability may arise due to the omissions or actions of other individual fiduciaries.

Red Flag – our forty years of experience shows even well-meaning and the best-intentioned Trustees, ERISA Plan Sponsors, HOA boards, Charities, Foundation and Endowment trustees are not managing or paying attention, fail to remember important items and connect the dots from one review to the next, may be out of date, unaware, uninformed and or incompletely informed thus prone to failure in making prudent decisions. Absent policies, procedures and documentation these trustees and the fiduciary accounts they oversee are very exposed to greater risk of loss and or litigation for breach of fiduciary duty. Prudence is best supported by asking direct, tough and many times the most simple and “obvious” questions of investment providers and or financial staff, corroborating those answers and documenting and actions taken or not. Having a written group-approved agenda in advance, reviewed and approved follow-up meeting minutes and actions needed and taken or not are highly recommended.

RED FLAG #2 – Elder Financial Exploitation (and or abuse). We’ve found as our population ages, previously competent elder trustees lose time, interest and attention to details vital when managing the fiduciary account(s) they oversee. This is often accompanied by declining health due to physical, mental and or emotional tolls not infrequently involving the time, financial burden and stress of caring for a loved one. Financial professionals are trained to spot this possibility and take action. In some cases, the financial professionals suffer declines themselves, devoting less time, skill and attention to fiduciary accounts they purport to manage on behalf of trustees and beneficiaries including IRA and IRA rollover accounts. Financial institutions’, registered investment advisory and other asset management firms’ (for-profit organizations whose interests may ultimately be at odds with trustees’ fiduciary duty) ownership and control structures, benefits, compensation, retirement, book of business transition programs, diversity, equity and or inclusion (DEI) and or other policies such as arbitrary account tiering may be indicated as well as changes in branch, complex, regional or national management personnel, compliance, priorities, goals and use of technology including artificial intelligence (AI) all can and do have an impact on the performance of customers’ fiduciary or trust accounts. Account tiering (also referred to as account segmentation, account optimization or any number of other related terms) is the process used by financial institutions to provide certain account coverage, assignments, features, benefits and or services to some accounts but not all often but not always based on the dollar value of the account and or fees / revenues generated to the FA, planner, wealth manager, private banker (whether as an individual, team or group) and firm. Every account at a financial institution is subject to some type of screening for account preference; nearly always in favor of the financial institution including account agreements and amendments thereto, trading, margin and rates, credit or loans, ATM and other fees, card, deposit, online bill payment, rewards, advisory, service and support personnel and levels thereof and all other emoluments offered such as priority access to entertainment events and webinars.

In the wake of the pandemic, recent banking panics (spring of 2023), emergency repo lending and funding and prior to that the Global Financial Crisis (2008), the Madoff (2008) and Allen Stanford’s Stanford Financial Group ponzi schemes (2009), private pension shortfalls and numerous 401k plan excessive fees cases, state, agency, city and profession-based public pension funding shortfalls, disputes in family trusts often including closely-held businesses and or limited partnerships and non-profit governance miscues ERISA plan participants, beneficiaries and the public seek to hold trustees and co-fiduciaries in the securities and broader professional services sectors more accountable in addition to increased scrutiny from self-regulatory (FINRA), federal (SEC) and state regulatory agencies.

When to get us involved: It’s best when we are contacted prior to the establishment of the new account (or new advisory) relationship to help prevent these types of situations in the first place. And if or when lawsuits or claims are contemplated it’s best we are retained prior to filing so that we can assist with and review the highly specific and detailed discovery requests and or in certain cases assist to resolve them (thus avoiding litigation) via a well-supported demand letter.

How to reach us: for any and all investment services, investments and or account-level questions or concerns related to the securities industry, breach of fiduciary duty, self-dealing, conflict of interest or malfeasance and or violations of FINRA, (and formerly the NASD and NYSE) or SEC securities regulations reach us at:

contact@fiduciaryexpert.com or (310) 943-6509 takes calls and texts