Can a trustee receive a referral fee from a money manager who the trustee hires to manage trust investments?
Answer: No.
Why?
Here’s why:
Background: Trustees Hiring Investment Managers or Money Managers
- The Florida Trust Code and Chapter 518 of the Florida Statutes (which includes the Florida Prudent Investor Rule) permit a trustee of a Florida trust to hire someone to manage the trust’s money.
- The investment company or money manager hired by the trustee is often referred to in Florida trust circles as an “investment agent“
- In fact, the Florida trust code has specific laws on trust investment agents
- The trustee has a duty to carefully select and monitor who manages the trust’s money
- If done properly, the trustee is said to have delegated investment functions to the investment agent
- The cost of the services of the investment agent, or money manager, is merely one factor to consider when a trustee hires a money manager
Why Can’t the Trustee Keep A Referral Fee ?
Because it’s not a referral fee
- A trustee is entitled to reasonable compensation from the trust. Period.
- If a trustee is able to negotiate a better deal or price for the services of an investment manager, the trustee should give any savings to the trust
- It’s the beneficiaries’ money, after all
- The trustee has a fiduciary duty to manage the trust for the benefit of the beneficiaries
- A referral fee from a money management firm which is shared with or given to the trustee smacks of a kickback
- Trustees don’t take kickbakcs
- Trustees have a fiduciary duty which means that they agree to place the interests of the beneficiaries, and the trust, above everyone else’s, including the trustee’s own
- If the money management firm which invests the trust’s money wants to pay a “referral fee” to the trustee, the trustee should take that money and put it in the trust: it’s the beneficiaries’ money, not the trustee’s.