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| > Investing > Fiduciary Focus |
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| Fiduciary Focus: Non-Profits Get Their Day (Part 2) |
| by
W. Scott Simon
| 11-02-06 |
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Last month's column explained that the Chicago-based National Conference of Commissioners on Uniform State Laws (the same group that brought us the Uniform Prudent Investor Act) published the Uniform Prudent Management of Institutional Funds Act (UPMIFA) in July. UPMIFA governs the investment conduct of trustees of non-profit money such as foundations and endowments.
Much of the language of the Uniform Prudent Investor Act was copied into the text of UPMIFA. This month's column, which maintains the respite from my (so far) four-part series on non-fiduciary investment consultants, will continue the comparison begun in last month's column of some of the more important provisions common to UPMIFA and the Uniform Prudent Investor Act.
Duties to Retain Prudent Assets or Dispose of Imprudent Assets
UPMIFA Section 3(e)(5)
"Within a reasonable time after receiving property, an institution shall make and implement decisions concerning the retention or disposition of the property or to rebalance a portfolio, in order to bring the institutional fund into compliance with the purposes, terms, distribution requirements, and other circumstances of the institution and the requirements of this [act]."
Commentary to section 3 of UPMIFA notes, in part: "This subsection.requires the institution to make a decision but does not require a particular outcome. The institution may consider a variety of factors in making its decision, and a decision to retain the property either for a period of time or indefinitely may be a prudent decision."
UPIA Section 4
"Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, and with the requirements of this [Act]."
Commentary to UPIA Section 4 states, in part: "The criteria and circumstances identified in Section 2 of this Act [i.e., section 2 is the heart of the UPIA which contains the standard of prudent conduct] as bearing upon the prudence of decisions to invest and manage trust assets also pertain to the prudence of decisions to retain or dispose of inception assets under this section."
Delegation
UPMIFA Section 5
"(a) Subject to any specific limitation set forth in a gift instrument or in law other than this [act], an institution may delegate to an external agent the management and investment of an institutional fund to the extent that an institution could prudently delegate under the circumstances. An institution shall act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, in:
(1) selecting an agent;
(2) establishing the scope and terms of the delegation, consistent with the purposes of the institution and the institutional fund; and
(3) periodically reviewing the agent's actions in order to monitor the agent's performance and compliance with the scope and terms of the delegation.
(b) In performing a delegated function, an agent owes a duty to the institution to exercise reasonable care to comply with the scope and terms of the delegation.
(c) An institution that complies with subsection (a) is not liable for the decisions or actions of an agent to which the function was delegated.
(d) By accepting delegation of a management or investment function from an institution that is subject to the laws of this state, an agent submits to the jurisdiction of the courts of this state in all proceedings arising from or related to the delegation or the performance of the delegated function.
(e) An institution may delegate management and investment functions to its committees, officers, or employees as authorized by law other than this [act].]"
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| W. Scott Simon is an expert on the Uniform Prudent Investor Act and the Restatement 3rd of Trusts (Prudent Investor Rule). He is the author of two books, one of which, The Prudent Investor Act: A Guide to Understanding is the definitive work on modern prudent fiduciary investing. Simon provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. He is a member of the State Bar of California, a Certified Financial Planner, and an Accredited Investment Fiduciary Analyst. Simon's certification as an AIFA qualifies him to conduct independent fiduciary reviews for those concerned about their responsibilities investing the assets of endowments and foundations, ERISA retirement plans, private family trusts, public employee retirement plans as well as high net worth individuals. For more information about Simon, please visitPrudent Investor Advisors, or you can e-mail him at wssimon@prudentllc.com The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. |
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