Registered investment advisors may work with clients who have trusts as part of their financial or estate planning. When trust administration becomes part of the relationship, an important consideration is determining which responsibilities belong to the RIA and which belong to the trustee.
How RIAs handle trust administration depends on the firm's services, regulatory structure, the trust documents, and the role assigned to each professional.
What Does Trust Administration Involve?
Trust administration can include maintaining records, following trust provisions, processing distributions, communicating with beneficiaries, and coordinating information with attorneys, tax professionals, and financial advisors.
The trustee's authority comes from the governing documents and applicable law. Investment management and financial planning may be provided separately by an RIA under its advisory relationship.
These functions can overlap in practice, so documenting responsibilities is an important part of establishing the relationship.
Can an RIA Serve as Trustee?
Whether an RIA can serve as trustee depends on its legal structure, applicable requirements, governing documents, and the specific services involved.
Some firms may work with a separate trust company when a client needs corporate trustee or fiduciary administration. This creates separate relationships for advisory and trustee services.
Many firms like Members Trust Company provide trust and estate services and works with RIAs and other financial professionals in connection with trust administration.
How Do RIAs Work With a Trust Company?
An RIA may continue providing investment advice or financial planning while a trust company handles fiduciary responsibilities assigned to it.
Coordination may involve:
Investment information
Distribution requests
Beneficiary communications
Trust reporting
Changes to the client's circumstances
Information requested by attorneys or tax professionals
The specific responsibilities of each party should be established in the applicable agreements and trust documents.
What Should RIAs Consider?
RIAs evaluating trust administration arrangements may consider:
Who holds fiduciary responsibility
Which party administers distributions
How beneficiary matters are handled
Reporting and recordkeeping procedures
Communication between the RIA and trustee
Investment management responsibilities
Coordination with legal and tax professionals
Applicable fees and administrative costs
Clients should also understand the role of each organization and any separate agreements or fee arrangements.
When Might a Separate Trustee Be Considered?
A separate trustee may be considered when a client needs corporate trustee services, ongoing trust administration, estate settlement, or other fiduciary responsibilities that are outside the RIA's existing service structure.
The appropriate arrangement depends on the client's circumstances and the governing documents.
Conclusion
How RIAs handle trust administration varies by firm, client circumstances, trust structure, and the responsibilities assigned to each professional. An RIA may provide investment and financial planning services while a separate trust company handles designated fiduciary and administrative duties.
Members Trust Company provides trust and estate services in relationships involving RIAs and other financial professionals. Advisors considering trust administration support should review roles, responsibilities, and applicable requirements with qualified professionals.
FAQ
Do RIAs administer trusts themselves?
Some may, depending on their structure and services. Others may work with a separate trust company when corporate trustee or fiduciary services are needed.
Who is responsible for trust distributions?
The trustee generally handles distributions within the authority established by the governing documents.
Can an RIA continue managing investments?
Depending on the arrangement, an RIA may continue providing investment advisory services while a separate trustee handles its assigned fiduciary responsibilities.
What should an RIA clarify before working with a trust company?
The parties should establish fiduciary responsibilities, administration duties, investment responsibilities, reporting, communication, and fee arrangements.
This article is provided for educational purposes only and does not constitute legal, tax, accounting, or investment advice. Trust, estate, retirement, and tax considerations vary based on individual circumstances and applicable law. Investment products and services are not deposits or obligations of, and are not guaranteed or endorsed by, Members Trust Company, any credit union or government agency. They are not federally insured and are subject to investment risk, including possible loss of principal. Readers should consult qualified professionals regarding their specific circumstances.
Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not NCUA/NCUSIF/FDIC insured. May lose value including the possible loss of principal. No financial institution guarantee. Not a deposit of any financial institution. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.
