A summary of the laws governing trustee responsibility for controlling costs.

Recent academic research indicates that cost control plays a critical role in the management and accumulation of wealth. Indeed, it is cost control, as opposed to superior investment skill, that often separates successful investment programs from their mediocre counterparts. Cost control, however, is much more than low fees and commissions. Trust portfolios [1] may exist in cost environments that generate high levels of turnover (taxes) and that generate substantial soft-dollar income for the professional trust company. Hidden trade execution costs can be both substantial and difficult to quantify. Likewise, seemingly benign investments, such as index funds, may subject the trust estate [2] to surprisingly high expenses. The newly adopted Prudent Investor standards suggest that performance and expenses should be decoupled (i.e. good performance does not justify inappropriately high fees) and that each area should be evaluated separately.

Download Managing Investment Expenses: Trustee Duty to Avoid Unreasonable Costs [3].

This article was co-authored by Luther J. Avery, JD, CPA, MBA and Patrick J. Collins Ph.D., CLU, CFA [4] and originally appeared in ACTEC Notes.