Investment Advisor Annual Review (Duty to Monitor)

A trustee has a duty to act prudently when they delegate investment responsibilities to third parties. One of these duties is “…establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust [and] periodically reviewing the agent’s overall performance and compliance with the terms of the delegation” — UPIA §9(a)(2,3).
The beginning of each year is an ideal time to create the governance record that these two duties of care have been fulfilled. Most investment advisors are eager to meet with each of their clients during the first quarter of each year to (1) review the prior year’s performance results and (2) confirm or modify the current portfolio design for the upcoming year. A prudent trustee will reserve a portion of this “annual review” meeting to create a record that their duty to “prudently delegate” and “periodically monitor” the investment advisor’s activities have been fulfilled.

We suggest that one efficient way to fulfill this oversight responsibility is to email the investment advisor the following questions and ask that the advisor provide their responses in writing. (We have designed these questions to be easily “cut and pasted” into an email with this request.)

Dear ________,
As you know I am a trustee of the ___________ trust. As trustee it is part of my duty to provide oversight and review of the trust assets. It would be helpful to me if you would take a few minutes to provide a written response to the following questions to help me populate my compliance library.

  1. What is the long-term targeted rate of return for the current portfolio given your firm’s long-term capital market expectations? (UPIA §2(b) – Duty to establish return objectives)
  2. What is the long-term risk expectation, as measured by one standard deviation, for the current portfolio given your firm’s long-term capital market expectations. (UPIA §2(b) – Duty to establish risk expectations)
  3. What have the portfolio’s since inception risk and return been, net of fees, as compared to a reasonably set blended benchmark with comparable risk expectations and return objectives?  (UPIA §2(c)(5) – Duty to consider total return of the portfolio) Comments: The Morningstar Target Risk Benchmarks are an easy resource to use as a blended benchmark.
  4. Are there any assets/products in the portfolio that cannot be sold within the SEC T+2 day settlement rules? (UPIA §2(c)(7) – Duty to consider liquidity needs)
  5. What is the agreed upon advisory fee for this account, and what were the actual fees paid to your firm during 2018? (Exclude product level fees or transaction costs.) (UPIA §7 – Duty re investment costs)
  6. What portion of the portfolio (both $ and %) is allocated to “low risk” securities from which trust distributions could be made if a protracted period of low/negative returns were experienced from the growth assets in the portfolio? (UPIA §2(a)(5) and §2(c)(5) – Duties to provide adequate liquidity to meet trust purposes)
  7. Are there any changes to allocation, strategy or products that you suggest given the prevailing economic environment (UPIA §2(c)(1) – Duty to consider prevailing market conditions)

By simply cutting and pasting these governance questions into an email to the investment advisor and requesting a written response to each of these questions, the trustee will have taken affirmative steps toward fulfilling their central duties of care under the Prudent Investor Act.


Josh Yager, Esq., CFP®, ChFC®


Anodos helps individual trustees save time, reduce their personal risk, and fulfill their fiduciary duties. We do this by helping trustees develop and maintain a series of governance documents which demonstrates they have fulfilled each of their duties of care. We also will act as an expert witness to defend our clients’ findings in court. What makes us unique is that trustee governance support is all we do. We do not manage money, sell insurance, or accept referral fees. We don't have a horse in the race.

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We help trustees save time, reduce risk, and fulfill their fiduciary duties. What makes us unique is that trustee governance support is all we do.