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HopeHope
For at least two years, fiduciaries have been chewing on three major issues that threaten to choke them: the courts' misinterpretation of the Uniform Prudent Investor Act's (UPIA's) requirement for portfolio diversification, the Internal Revenue Service's interpretation of the deductibility of investment advisory fees (IAFs) and, for corporate fiduciaries, the compliance requirements of the U.S. Patriot
January 1, 2008
Gail E. Cohen
For at least two years, fiduciaries have been chewing on three major issues that threaten to choke them: the courts' misinterpretation of the Uniform Prudent Investor Act's (UPIA's) requirement for portfolio diversification, the Internal Revenue Service's interpretation of the deductibility of investment advisory fees (IAFs) and, for corporate fiduciaries, the compliance requirements of the U.S. Patriot Act.
At long last, fiduciaries have reason to hope for a little relief:
Diversification — The June 2004 Dumont1 decision in New York and others like it cast doubt on the exact nature of trustees' ability to rely on trust language that modifies the duty to diversify. Now, thankfully, an Indiana state court has broken the spell by actually respecting the language of the trust agreement.
IAFs — The IRS argues that trusts cannot fully deduct IAFs, which would be a major blow to trusts holding significant assets and would require many corporate trustees to overhaul the method in which they compute trustee commissions. But observers of the recent oral arguments before the U.S. Supreme Court in Knight2 are hopeful the high court might rule that IAFs are indeed fully deductible. Meanwhile, Knight and the IRS' proposed regulations highlight an interesting issue that has yet to be fully explored regarding the bifurcation of investment management fees.
Compliance — Only on the compliance front does there seem to be no expectation of relief. Corporate fiduciaries still labor and seem resigned to the onerous compliance requirements imposed by the federal government in its homeland security efforts.
Diversification
It cannot be stressed enough how important diversification is to corporate trustees. But we need to get away from the recently hatched notion that there is an absolute duty to diversify. This notion appears to have taken hold in many juris...
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