Transcript Personal and Institutional Trusts Administrative Reviews

Personal and Institutional
Trusts Administrative
Reviews
FIRMA National Training
Conference
April 15-19, 2007
David Cormak, Senior Vice President
GWIM Compliance Executive
Bank of America - St. Louis, Missouri
[email protected]
1
Disclaimer
The information contained in this presentation reflects the opinions of the
author and not necessarily those of Bank of America
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Agenda
What is an Administrative Review and why do it?
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Determining the Scope of an Administrative
Review
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Regulatory expectations
The Risk/Reward Balance
Risk Ranking accounts
Frequency of review
Elements to review
Other Process Considerations
Technology
Compliance/Risk Role
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What is an Administrative
Review?

Administrative Review covers the synoptic
coding and general administrative data of
an account to ensure compliance with:

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Terms of the governing instrument
Internal policies and procedures
Regulations
All applicable laws
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What is an Administrative
Review?

It is not an annual investment review as
required by Reg 9.
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It can be as simple as reviewing synoptic
coding to ensure it is in line with the
governing instrument.
It can be as extensive as a full document
review, updating a family tree, reviewing
transactions, or ensuring all appropriate
parties are receiving statements.
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Regulatory Expectations

While there is no regulatory requirement
to perform an Administrative Review, if
you do perform them, the expectation is
that you will:
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Use a consistent process to review accounts.
Review your accounts on a regular basis.
Address any issues you identify as part of the
process.
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Why do an Administrative
Review?

It can be an effective management tool to
manage risk and ensure compliance with
the governing instruments.

However, it is not one size fits all.
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The Risk/Reward Balance

The Risk/Reward analysis will vary by each
organization’s unique circumstances:
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Have there been mergers or major systems conversions?
Have there been recent negative exam or audit findings?
Is the account base comprised of a disproportionate
number of high risk accounts?
How easy is it to gather the account information needed
to do a review?
Do you need to invest in technology to track and report
against the results?
What is the quality of your staff?
What is the status of your quality controls?
What is the capacity of your staff to absorb the additional
work?
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Risk/Reward Balance
Potential Benefits

Increased confidence:
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That accounts are being administered in
accordance with the key provisions of the
governing document.
In the accuracy of key system coding.
In the accuracy of management reporting, fee
calculations and distributions.
That appropriate actions will be taken at the
time of a significant life event.
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Risk/Reward Balance
Potential Benefits

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Mitigate risk by identifying potential
issues or opportunities.
Strengthen customer relationships by
improving communication and service
quality by having a better understanding
of the terms and conditions of the
agreement and accurate systems coding.
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Risk Ranking of Accounts

Risk ranking accounts can help optimize
your administrative reviews by:
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Properly aligning resources with risk.
Focus management's attention on higher risk
accounts.
Varying the frequency of reviews based on
risk.
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Risk Ranking of Accounts

Common risk ranking categories:
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Account Type (Trust vs. Agency)
Revocability
Pledged Assets
Investment Responsibility
UPIA
Market Value
Multiple beneficiaries
Specialty (Unique) assets
Concentrations
Holding Bank Stock
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Example of Review Schedule
based upon Risk

High risk – most frequent
(every 6-12 months)
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Medium risk – based on preset cycle
(every 12 -24 months)
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Low risk – longest cycle
(every 24 to 36 months)
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On an as needed basis, when a significant
event occurs
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Determining Scope to include on
an Administrative Review
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Review important administrative items
such as:
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Documents (original and amendments)
System coding (especially those that drive
activity)
Verification of governing law
Tax documentation (W-9, W-8)
Statements to beneficiaries and third parties
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Determining Scope to include on
an Administrative Review
 Unique account circumstances
 Discretionary and other distribution
provisions
 KYC documentation
 Documentation regarding key agreements
(fees, repetitive distributions, delegations,
etc.)
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Determining Scope to include on
an Administrative Review

Overlay actual experience and consider
adding elements that:
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Regularly cost the firm money in losses.
Have been cited during recent audits or
compliance reviews.
Are critical path items, even if they do not
present current problems.
Regularly review the scope of the
Administrative Review in light of recent
experience.
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Determining Scope to include on
an Administrative Review
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Emerging areas for consideration:
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Compliance with Privacy policy
Compliance with information protection
process (systems access or data mining)
Obligations imposed by new laws such as
UPIA or the UTC
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Other Process Considerations
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Who will perform the reviews?
How will the results be documented?
Who has ultimate accountability for
oversight of the process and resolution of
exceptions?
Who ensures that unresolved exceptions
are appropriately addressed?
Who is accountable for looking at the “big
picture” to identify, monitor and address
systemic issues?
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Technology
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Depending on the size of your
organization, the state of your accounts
and available resources, Excel might be
sufficient technology.
Or you may find that the gains from time,
cost and quality justify an expenditure on
larger systems applications.
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Key Technology Uses
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Use technology to standardize your
process.
Risk rank accounts based on systems
coding.
Scan account information and
automatically generate exceptions to be
address based on predefined norms.
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Key Technology Uses
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Automatically generate review when an
updated review is required while
archiving the older reviews.
Use technology to create management
reporting to track progress on reviews
and track the correction of any exceptions
found during review.
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Key Technology Uses
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Enable searches, filters and ad hoc
reporting functionality.
Provide ability to create manual
exceptions as needed.
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Compliance/Risk Role
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Depending on the risk and control model
in place in your organization, you may
play different roles in the process:
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Participation in governance or oversight
meetings.
Perform independent testing.
Tracking completion and mitigation of
exceptions.
Identification and reporting of systemic
issues.
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Summary
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Look at what makes sense for your
organization – the Risk/Reward Equation.
Consider risk ranking items based on
objective factors and emerging areas of
risk.
Consider basing the frequency of your
reviews on the risk profile of the account.
Use technology to make your process
more efficient, identify and track
corrected deficiencies.
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Summary
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The importance and impact of an
Administrative Review can be greatly
elevated if it is considered a living process
directed at the most significant current
risk.
In other words, you can’t design it once
and forget about it.
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Questions?
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Appendix
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Failure Mode & Effects Analysis ratings
(FMEA)
Sample Administrative Review Questions
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Rating Scale for FMEA
Rating
Severity of Effect
Likelihood of
Occurrence
5
Almost certain loss of customers,
reputational risk, and/or
regulatory risk
Very High:
Failure is almost
inevitable
Little to no
chance of
detection
4
High probability of customer
dissatisfaction and lost business,
reputational risk, and/or
regulatory risk
High: Repeated
Failures
Very low chance
of detection
3
Noticeable to customers resulting
in potential for lost business,
some reputational risk, and/or
possible regulatory notice.
Moderate:
Occasional
Failures
Moderate chance
of detection
2
Minor defected noted by some
customers and noticed by
discriminating customers. Minor
reputational risk.
Low: Relatively
few failures
High chance of
detection
No Effect
Remote: Failure
is unlikely
Almost certain
detection
1
Ability to Detect
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Sample Administrative
Review Questions
1.
2.
3.
Have you reviewed a copy of the governing instrument,
including all amendments and codicils on file?
Based on the governing instrument, are the account
titles coded appropriately?
Is there a specific 5 and 5 withdrawal power stated in
the governing instrument?
a.
b.
Is there evidence in the file that the current power holder is
aware of their right to withdraw?
If no, a notice and copy of the governing instrument must
be sent to the power holder.
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Sample Administrative
Review Questions
Is the firm or firm associate named as Attorney-in-Fact
4.
a.
b.
c.
d.
e.
f.
Have we been notified of a POA for the beneficiary or
settler?
Do we have an original or certified copy of the POA?
Have we confirmed that the beneficiary or settlor is alive?
Is the POA still in effect?
If POA is not durable, have we confirmed that the
beneficiary or is still competent?
Have all distributions requested by the Attorney-in-Fact
been made directly to a service provider, or to the
beneficiary or grantor, or to an account in their name?
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Sample Administrative
Review Questions
Beneficiaries
5.
a.
b.
c.
Are all required income and principal beneficiaries set up on
the system?
Are proper beneficiaries receiving payments?
Are W-9s on file for all current beneficiaries?
Is the settlor or any current beneficiary mentally
incompetent or a minor?
6.
a.
b.
c.
d.
Do we have adequate documentation in the file?
Does the instrument have a facility of payment clause?
Are distributions being made in compliance with that
clause?
If beneficiary is a minor, is a tickler established to alter
payee upon age attainment?
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Sample Administrative
Review Questions
7.
Are there any beneficiaries, co-trustees, or grantors who
are not U.S. citizens (NRAs)?
a.
b.
8.
Do we have a W-8 on file?
If Grantor is an NRA, has the appropriate KYC approval
from the NRA KYC unit been obtained?
Statements
a.
b.
Are the proper parties set up to receive statements?
If statements are not being mailed to a beneficiary or
independent 3rd party, is the Committee set up to receive
an annual statement?
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Sample Administrative
Review Questions
Are we making recurring payments from the account?
9.
a.
b.
c.
According to the document and beneficiary information, are
payments still appropriate under current account
circumstances?
Have all clients receiving recurring income payments been
contacted within the last year?
If account is a simple trust, is all the income being
distributed to the beneficiaries as appropriate?
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Sample Administrative
Review Questions
Is there a co-fiduciary on the account?
10.
a.
b.
c.
11.
Is there written approval in the file for general
administrative duties?
Are there any specific decision-making powers granted to
the co-trustee under the document?
If yes, are we complying with such powers?
Is this a discretionary account?
a.
b.
Are discretionary distributions allowed:
1) from Income?
2) from Principal?
Were appropriate approvals/ratifications obtained for all
discretionary distributions made in the past 12 months?
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Sample Administrative
Review Questions
Review the document for important dates/events (i.e.
attainment of age, annual accumulated income
disbursements/transfers, etc.).
12.
a.
Are appropriate administrative ticklers established?
Fee Review – Part 1
13.
a.
b.
c.
d.
Is the account charged full fees in accordance with current
Fee Schedule?
Is the fee exception still appropriate for the account?
Is there a restrictive fee clause in the document or a
separate fee agreement?
If yes, are we complying?
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Sample Administrative
Review Questions
Fee Review – Part 2
14.
a.
b.
c.
d.
e.
15.
Is the fee coding correct?
Is this account subject to Court supervision?
Are all distributions made in accordance with a court order,
applicable document, or state statute?
If accountings are to be sent to the court, have ticklers
been established to ensure they are being sent?
Are necessary court orders and approvals of accountings on
file?
Does the account hold Proprietary Funds (including
money markets)?
1.
2.
Are appropriate disclosures on file for sole authority
accounts?
Is the signed authorization on file for co-trustee, IRA, or
directed/advisory accounts?
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Sample Administrative
Review Questions
Are there any restrictive investment clauses in the
document?
16.
a.
b.
c.
17.
Does the account hold any Specialty Assets?
a.
18.
Does the document prohibit the use of Proprietary Mutual
Funds?
Are there other investment restrictions in the document?
Are we complying with the noted restrictions?
Are the appropriate units actively involved with the
management of these specialty assets?
Are there any outstanding loans from the account to any
borrowers, and/or has the account been pledged as
collateral?
a.
b.
Is proper loan documentation on file?
Are payments current?
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