The Uniform Prudent Investor Act (UPIA) has been adopted by 44 states, the District of Columbia and the US Virgin Islands (as of 2010). Though UPIA appears in the trust section of the Probate Code of most states, many courts look to this Act for the most current and appropriate principles of correct investment management for all fiduciary accounts. As an example, the California Probate Code Section 2101 states that “the relationship of guardian and ward and of conservator and conservatee is a fiduciary relationship that is governed by the law of trusts, except as provided in this division.” UPIA states that a fiduciary’s performance in managing the beneficiary’s/ward’s assets is to be evaluated, “not in isolation, but…as part of an overall investment strategy.” Stated more directly, “an overall investment strategy” should probably be interpreted as meaning a written Investment Plan (IP). An investment plan that is not written would be very difficult to evaluate, or defend if investments were ever challenged.
Why should one draw that conclusion? The first law addressing the issue of investment plans (IPs) was the federal ERISA Act of 1974 that governs the administration of corporate pension plans. In essence, ERISA stated that persons responsible for the management of other people’s investments had been placed in a position of unusual trust. ERISA-mandated written investment policy statements for all retirement plans. There was to be no haphazard investing of those monies – fiduciaries were made liable for breaches in prudence and diversification standards. Conservatorships, guardianships and private, irrevocable trusts place that same responsibility for someone else’s assets upon the fiduciary. It is not surprising, therefore, that UPIA has adopted a position similar to that of ERISA, encouraging the use of written IPs.
A written IP allows fiduciaries to clearly establish the prudence and diversification standards they want maintained in the investment process. It provides a clear directive to the investment advisor as to what responsibilities he/she is accepting and committing to in accepting the management of the account. Therefore, fiduciaries should provide the investment advisor with a copy of the IP and have him/her sign a copy that can be retain in the account files. If investment advisors breach their responsibilities relative to the IP and the fiduciary hold them responsible to correct the breach, the fiduciary’s potential liability is greatly reduced, if not eliminated (as stated in Code Section 16052(c)).
The net effect of a written policy is to reduce potential liability and increase the likelihood that the fiduciary will be able to meet the financial needs of the beneficiary/ward through the development of specific objectives resulting in more effective investment management. To have us create an Investment Plan, please click on the “Guardians & Fiduciaries” menu, above, and then select “Fiduciary Forms” to complete and submit an appropriate questionnaire. The first IP is created at no charge; the cost for subsequent IPs is $250.