North Carolina ABLE Program Board of Trustees: Fiduciary Training

Transcription

1 North Carolina ABLE Program Board of Trustees: Fiduciary Training

2 Welcome to the North Carolina ABLE Program Board of Trustees Fiduciary Training Board s Mission: To exercise fiduciary oversight of the North Carolina ABLE Program. North Carolina General Statute charges the Board of Trustees with oversight and responsibility for the general administration and proper operation of the ABLE Program, and to determine the appropriate investment strategy for the ABLE Program Trust. Fiduciary considerations should be the guiding principle behind the oversight and actions of the Board of Trustees, both individually and collectively.

3 A fiduciary is anyone who: Exercises authority or control over the management or administration of an investment program. Exercises any authority or control over program assets such as: - authorizing a fund change - authorizing a distribution - negotiating with a vendor - hiring or firing vendors.

4 Fiduciary law sets the highest standard of conduct for fiduciaries: Being a fiduciary creates a legal and/or ethical relationship of trust between two or more parties. The fiduciary is someone who has undertaken to act for, and on behalf of, another in a particular matter in circumstances that give rise to a relationship of trust and confidence.

5 Fiduciary duties fall into two broad categories: The duty of loyalty and The duty of care.

6 The duty of loyalty requires an NC ABLE Program Trustee to act: Solely in the best interests of the designated beneficiaries of NC ABLE accounts For the exclusive purpose of providing benefits to the designated beneficiary, and Impartially, avoiding conflicts of interest and selfdealing

7 The duty of care requires an NC ABLE Program Trustee to act: With the care, skill, and prudence exercised by similar fiduciaries in program design and investment-related matters, including diversification of investments. To perform due diligence in matters related to investment of program assets impartially, taking into account any differing interests of designated beneficiaries To incur only costs that are appropriate and reasonable, and To act in accordance with applicable statutes and regulations

8 What does prudence look like? Changes to the Restatement of Trusts in 1992 and the Uniform Prudent Investor Act resulted in a shift from the prudent person standard to the prudent investor standard. Whether or not an investment-related decision is prudent is determined by the facts and circumstances when the decision is made, not based on the advantage of hindsight.

9 Prudence in Selecting Investment Managers Includes: A thorough evaluation and selection process Adequate due diligence Comprehensive investment management agreement Performance monitoring

10 Rules of prudence in order to avoid liability: Perform due diligence on investments and/or investment managers; Obtain expert assistance and advice, if needed; It is no defense that a decision was made solely in good faith without diligence; Give appropriate consideration to the role that the investment or investment course of action plays in a portfolio, and Oversee and monitor each portfolio so as to minimize the risk of loss, maximize the rate of return, and ensure appropriate diversification.

11 Best Fiduciary Practices: Adopt Board Governance Policy, including Conflict of Interest guidelines; Be sure to have a written statement of investment policy and objectives; Conduct annual financial and management audits; Continual review of investment performance and fees; Periodic review of administrative policies/procedures; Establish trustee education program, and Conduct staff education and training.

12 Liability for Fiduciary Breach: N.C.G.S (f) gives statutory immunity from civil liability for monetary damages, except to the extent liability is covered by insurance. Exceptions are when fiduciary is: Not acting within the scope of official duties Not acting in good faith Committing gross negligence or willful/wanton misconduct that resulted in the damages or injury Deriving an improper personal financial benefit, either directly or indirectly, from the transaction

13 Liability for Breach of Co-Fiduciaries: Fiduciary may be held liable for a breach of a co-fiduciary if he or she: Knowingly participates in or conceals the breach; Enabled the breach through engaging in an unlawful transaction, and Has knowledge of a breach and does not take reasonable steps to remedy it.

14 Liability for Breach of Contractual Fiduciaries: Fiduciaries are not liable for the actions of investment managers and other vendors, so long as they satisfy the prudence standard in selecting and monitoring investment managers and other vendors.

15 Common excuses for accepting things of value from someone who can benefit from your actions: Do you really think I m going to change a vote because he bought me a hamburger? Everyone does it, it s part of building a relationship. If the manager is beating all his benchmarks, why does it matter that he paid for a round of golf?

16 Common occurrence of representing interests of day job on the Board: Sure I m speaking in the interest of my employer, but it also happens to be what I think. Sure I m speaking in my employees interest, but everyone else does it, too. I m on the Board by virtue of my position. Am I supposed to forget my real job? What if others don t do that?

17 Common occurrences of self-dealing, or taking action to benefit those close to you: Sure I encouraged the Board to hire my brother-in-law, but he s qualified for the job. The Program isn t going to go broke if I extend that due diligence trip to Ireland by a couple of days.

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19 Final thoughts on Fiduciary Best Practices Use experts when needed consider outside help when: Internal expertise is limited Objective, third-party advice is needed Reduction of fiduciary risk is desired, particularly with plan investments Be an active participant in the governance of the NC ABLE Program: Attend meetings Ask questions Review Program activity and financial reports Seek fiduciary education opportunities

20 Questions? or Thank you!