Trust Examiner School - September 2023
Trust Examiner School
September 19-28, 2023 Live Virtual
@ www.csbs.org � @csbsnews
CONFERENCE OF STATE BANK SUPERVISORS 1129 20th Street NW / 9th Floor / Washington, DC 20036 / (202) 296-2840
Trust Examiner School Live Virtual September 19 – 28, 2023
Tuesday, September 19, 2023
Introduction & Pre-Course Review
1:00 pm – 2:30 pm 2:30 pm – 2:45 pm 2:45 pm – 4:00 pm
Break
Introduction (continued)
Wednesday, September 20, 2023 Prior Class Review
1:00 pm – 1:15 pm 1:15 pm – 2:30 pm 2:30 pm – 2:45 pm 2:45 pm – 3:30 pm 3:30 pm – 4:00 pm 1:00 pm – 1:15 pm 1:15 pm – 2:30 pm 2:30 pm – 2:45 pm 2:45 pm – 4:00 pm 1:00 pm – 1:30 pm 1:30 pm – 2:45 pm 2:45 pm – 3:00 pm 3:00 pm – 4:00 pm 1:00 pm – 1:15 pm 1:15 pm – 2:15 pm 2:15 pm – 2:30 pm 2:30 pm – 3:00 pm 3:00 pm – 4:00 pm 1:00 pm – 1:15 pm 1:15 pm – 2:30 pm 2:30 pm – 2:45 pm 2:45 pm – 3:45 pm 3:45 pm – 4:00 pm
Supervision & Organization
Break
Supervision & Organization
Operations, Internal Controls & Audit
Thursday, September 21, 2023 Prior Class Review
Operations, Internal Controls & Audit
Break
Asset Management
Tuesday, September 26, 2023 Prior Class Review
Asset Management
Break
Account Administration
Wednesday, September 27, 2023 Prior Class Review
Account Administration
Break
Account Administration Conflicts of Interest
Thursday, September 28, 2023 Prior Class Review
Conflicts of Interest
Break
Earnings
Final Assessment
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Virtual Trust Examiner School Introduction
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Introductions
NAME
STATE AGENCY
YEARS OF EXAMINATION EXPERIENCE & WITH TRUST
FUN FACT ABOUT YOU
SOMETHING YOU HOPE TO LEARN DURING THIS CLASS
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Instructor Contact Information
Kirk Schreiber
Senior Depository Analyst Indiana Department of Financial Institutions kschreiber@dfi.in.gov
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Instructor Contact Information
Bank Examinations Supervisor Alabama State Banking Department Andre.Scott@banking.alabama.gov Andre Scott
4
OhlandB@michigan.gov
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OhlandB@michigan.gov
Instructor Contact Information
Trust Activities Regional Supervisor Michigan Department of Insurance & Financial Services OhlandB@michigan.gov Bruce Ohland
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Session Learning Objectives: 1. Review Day One: Trust Examiner Training
6
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Session Learning Objectives: 2. Understand the
role of pre-exam planning in risk scoping an exam
7
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Session Learning Objectives: 3. Discuss agency and/or joint exam
approaches to pre-notification package
8
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Session Learning Objectives: 4. Understand Trust
Department and Trust Company structures
9
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Session Learning Objectives: 6. Recognize Trust
Companies have additional rating components
10
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Session Learning Objectives: 7. Understand who regulates trusts
11
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Session Learning Objectives: 8. Understand the Uniform Interagency Trust Rating System (UITRS) and other rating systems
12
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Session Learning Objectives: 10. Apply concepts to exam scenario exercises
13
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Introduction Review Day One: Trust Examiner Training
Trust Pre-Examination Planning
Trust Department VS Trust Company
Ratings
14
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Go to www.kahoot.it
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Introduction Overview of Day One: Trust Examiner Training
Trust Pre-Examination Planning
Trust Department VS Trust Company
Ratings
16
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Trust Pre-Examination Planning
Prior Issues
Prior Exam & Workpapers
Call Reports & Financials
Financial Condition
Off ‐ Site Review
Requested Information
17
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Trust Pre-Examination Planning
Familiarize Yourself with the Trust Department/Company • Internal and external documents • Conversations with examiners and management
Identify Key Risk Areas • Draw conclusions on risks, examination
Initial Contact with Management • Introduction • Sooner rather than later
strategy, and assignments
18
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Trust Pre-Examination Planning
Requesting Examination Information • Draw conclusions about risks, examination strategy, and assignments
Creation of Scope Memo • Varies by department • At a minimum, should cover • Institutional overview • Risk assessment • Discussions with Management • Prior examination findings • Financial analysis • Assignments/logistics
Determine Staffing
• Subject matter experts • Sufficient to complete a timely examination
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Pre-Notification Package
Also called: • Entrance Letter • First Day Letter • Request List
20
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Off-Site Review of Workpapers
• Prior examination issues • Any enforcement actions • Logistics • Information from the confidential pages
21
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Introduction Overview of Day One: Trust Examiner Training
Trust Pre-Examination Planning
Trust Department vs. Trust Company
Ratings
22
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What is a Trust Company? • Stand-alone
• Assigned CAMELS ratings • Earnings component is standardized • Regulators: • If nationally chartered, OCC • If state chartered
• State & FRB if bank in org chart • State only if not
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What is a Trust Department? • Part of a bank
• Not assigned CAMELS ratings • Earnings component based on size • Regulators: • If nationally chartered, OCC • If state chartered, State & Federal agencies (FDIC, FRB)
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Trust Company • Term can be misleading •Use of “trust” in name •Can only rely on the errors & omissions insurance coverage
Trust Department • Errors & omissions insurance coverage; and •Backing of bank/bank holding company
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Trust Company
Deposits • State ‐ chartered cannot accept, generally • Limitation distinguishes from banks • Separate charters
OCC • Charters &
Historically
• Held &
regulates limited ‐ purpose national trust banks • Fiduciary powers in all states
safeguarded client assets
• Form & act as trustee for common trust
funds & collective investment trusts
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TRUST DEPARTMENT
TRUST COMPANY
TRUST DEPARTMENT VS. TRUST COMPANY
Division of a bank
Yes
No
Typically, state and Federal agencies
Usually, state or Federal agency In accordance with either state or Federal statutes
Regulator
Examination schedule
Generally, in accordance with both state and Federal statutes
Examinations subject to agency rotation Accepts deposits and makes loans Capital requirement
Yes
No
No
Only under special circumstances
Usually none
Based on state or Federal agency statutory requirements
Separate regulatory assessment
Usually none
Yes
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Introduction Overview of Day One: Trust Examiner Training
Trust Pre-Examination Planning
Trust Department VS Trust Company
Ratings
28
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Trust Rating System
• Uniform Interagency Trust Rating System (UITRS) • Five components of an institution’s fiduciary activities to be evaluated • An overall Composite rating considers each component
29
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Trust Rating Components
1. Management 2. Operations, Internal Controls & Audit 3. Earnings 4. Compliance 5. Asset Management
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Trust Rating Scale
• Scale from 1 to 5 • 1 is the best rating available • Ratings are distinguished by key words or phrases
31
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Rating the Component: Management • Capability of Board & management
• Level & quality of oversight • Risk monitoring systems • Responsiveness • Experience & competence
32
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Rating the Component: Operations, Internal Controls & Audit • Adequacy of systems & internal controls • Reconciliation processes • Independence, frequency, quality & scope of audit
33
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Rating the Component: Earnings • Profitability • Budgets • Rating only required when total trust assets are over $100 million or if non depository trust company
34
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Rating the Component: Compliance • Overall compliance with: • Laws • Regulations • Standards of conduct • Governing instruments • Policies & procedures • Evaluation of self-dealing & conflicts of interest
35
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Rating the Component: Asset Management • Risks associated with managing assets
• Portfolio management • Evaluation of processes • Committee review & approval • Periodic reviews of investment performance
36
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Resources • FDIC Trust Examination Manual https://www.fdic.gov/regulations/examinations/trustmanual/index.html
• UITRS Update Letter – 10/7/1998 https://www.fdic.gov/news/news/financial/1998/fil98115b.html
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Exercise
40
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Virtual Trust Examiner School Supervision & Organization
1
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Session Learning Objectives: 1. Understand the role of the Statement of Principles
2
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Session Learning Objectives: 2. Discuss
evaluation of staffing and organization
3
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Session Learning Objectives: 3. Provide examples of areas to review related to Board oversight
4
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Session Learning Objectives: 4. Understand the role of the Trust Committee
5
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Session Learning Objectives: 5. Discuss the role of policies and procedures
6
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Session Learning Objectives: 6. Provide tips for
evaluating insurance coverage
7
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Session Learning Objectives: 7. Discuss some common legal issues
8
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Session Learning Objectives: 8. Apply concepts to exam scenario exercises
9
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Supervision & Organization Statement of Principles of Trust Department Management
Staffing & Organization
Fiduciary Insurance Coverage
Legal Counsel & Litigation
10
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Statement of Principles of Trust Department Management
11
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Statement of Principles of Trust Department Management
Designate Officer
Trust Committee
Legal Counsel
Policies
Internal Controls
Examination Reports
Audit
Reports
12
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Statement of Principles of Trust Department Management
Designate Officer
• Qualified & competent • Define officer’s duties
13
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Statement of Principles of Trust Department Management
Trust Committee
• At least 3 directors • One or more who are not active officers of bank
14
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Statement of Principles of Trust Department Management
• Comprehensive written policies
Policies
15
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Statement of Principles of Trust Department Management
• Competent • Advise trust officers & trust committee
Legal Counsel
16
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Statement of Principles of Trust Department Management
Internal Controls
• Adequate internal controls • Controls over trust assets
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Statement of Principles of Trust Department Management
• Adequate audit • Minutes record the findings
Audit
18
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Statement of Principles of Trust Department Management
• Receive reports • Record actions taken in minutes
Reports
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Statement of Principles of Trust Department Management
Examination Reports
• Review reports • Record actions taken in minutes
20
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Supervision & Organization Statement of Principles of Trust Department Management
Staffing & Organization
Fiduciary Insurance Coverage
Legal Counsel & Litigation
21
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Board Duties
• Trust Committee • Overall responsibility
22
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Committee Duties
• At least 3 directors • Items to note when reviewing minutes
23
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Management
• Key roles • Questions to consider
24
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Policies & Procedures
• Trust Committee • Overall responsibility
25
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Staffing & Organization
• Evaluate adequacy • Indicators of weaknesses
26
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Supervision & Organization Statement of Principles of Trust Department Management
Staffing & Organization
Fiduciary Insurance Coverage
Legal Counsel & Litigation
27
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Fiduciary Insurance Coverage
• Main source of protection • Declarations page • Cost/benefit analysis • Annual review
28
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Supervision & Organization
Statement of Principles of Trust Department Management
Staffing & Organization
Fiduciary Insurance Coverage
Legal Counsel & Litigation
29
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Legal Counsel & Litigation
• General indicators • Legal opinions
30
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Resources • Statement of Principles of Trust Department Management https://www.fdic.gov/regulations/examinations/trustmanual/section_1/se ction_i.html#_toc491753853
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Virtual Trust Examiner School Operations, Internal Controls & Audits
1
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Session Learning Objectives: 1. Understand the importance of recordkeeping related to trust accounts, as well as the trust company/department
2
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Session Learning Objectives: 2. Discuss the importance of internal routines & controls
3
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Session Learning Objectives: 3. Understand audit requirements under the Statement of Principles of Trust Department Management
4
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Session Learning Objectives: 4. Discuss what factors are included in the evaluation of the audit function
5
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Session Learning Objectives: 5. Discuss aspects
of and effective audit program
6
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Session Learning Objectives: 6. Understand what
elements should be in the scope of audit coverage
7
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Session Learning Objectives: 7. Discuss call report
requirements, frequency, and accuracy
8
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Session Learning Objectives: 8. Apply concepts to an exam scenario exercise
9
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Operations, Internal Controls & Audits
Recordkeeping
Internal Routines & Controls
Audit Function
Call Reports
10
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Recordkeeping Operation of the trust department separate and apart from every other department of the bank, with trust assets separated from other assets owned by the bank, and the assets of each trust account separately from unrelated accounts
Maintain records in sufficient detail to properly reflect all activities
Account for principal and income according to the governing agreement
11
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Operations, Internal Controls & Audits
Recordkeeping
Internal Routines & Controls
Audit Function
Call Reports
12
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Internal Routines & Controls
Segregation of Duties
Reconcilements Vault Control Procedures
Dormant/ Unclaimed Funds
Blank Check Control
Hold-Mail Procedures
Vacation Policies
13
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Internal Routines & Controls
• Timeliness • In balance • Stale ‐ dated items • Signatures • Independence
Reconcilements
14
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Internal Routines & Controls
• Dual control • Vault log/verification • Periodic audit • Location
Vault Control Procedures
15
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Internal Routines & Controls
• Most fundamental I/C • Not one individual • Administrative separate from operations
Segregation of Duties
16
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Internal Routines & Controls
• Pre ‐ numbered • Signatures/approvals • Controls
Blank Check Control
17
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Internal Routines & Controls
• Written procedures/forms • Frequency of physical mailings
Hold and Return Mail Procedures
18
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Internal Routines & Controls
• Everyone • Time away from job
Vacation Policies
19
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Internal Routines & Controls
• Effective controls • Monitoring • Escheated timely
Dormant/ Unclaimed Funds
20
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Operations, Internal Controls & Audits
Recordkeeping
Internal Routines & Controls
Audit Function
Call Reports
21
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Statement of Principles of Trust Department Management
Provide for an adequate audit (by internal or external auditors or a combination thereof) of all fiduciary activities, annually. Trust committee minutes should record the findings of the audit, including actions taken as a result of the audit.
22
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Statement of Principles of Trust Department Management
Continuous Audit Process
Annual Audit Process
23
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Statement of Principles of Trust Department Management
• Activity ‐ by ‐ activity basis • Internal audit staff or independent third ‐ party • Should cover all areas within 3 ‐ 5 years
Continuous Audit Process
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Statement of Principles of Trust Department Management
• Typically, smaller institutions • Internal audit staff or independent third ‐ party • Intervals must be supported & reassessed to ensure appropriate
Annual Audit Process
25
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Factors Evaluated
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Factors Evaluated
Independence
Quality
Scope
Frequency
Staff experience & competence
Volume and/or severity of exceptions
27
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Audit Program
Aspects/Features of an effective audit program: • Written policy • Audit Committee Charter • Audit risk assessment • Written audit program approved by Audit Committee and/or Board • The findings of the audit, including actions taken as a result of the audit, should be recorded in Audit Committee and/or Board minutes
28
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Audit Program
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Audit Program
Audit Risk Assessment: • Auditable areas • Inherent risk • Mitigating controls • Residual risk • Risk trend • Audit frequency • Audit Risk Assessment Example
30
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Scope of Audit Coverage
• The accuracy and validity of transactions • Fee calculations, collections, and waivers • Compliance with governing instruments, internal policies, statutory and regulatory requirements • Internal routines and controls
31
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Scope of Audit Coverage
Account administration practices, such as documentation of: • Trust agreements and court orders • Income receipts and distributions; • Principal invasions such as appropriate approvals; • Receipt of assets; • Co-fiduciary and grantor approvals; • Beneficiary and third-party approvals; • Unique assets; and • Annual administrative and investment reviews
32
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Scope of Audit Coverage
• Management information systems • Verification of assets • Trust committee minutes • Trading activities • Assessment of management's corrective actions
33
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Scope of Audit Coverage
34
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SAS, SSAE & SOC Reports • SAS 70
• SSAE 16 • SSAE 18
• SOC 1 • SOC 2 • SOC 3
35
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SAS, SSAE & SOC Reports Statement on Auditing Standards (SAS) 70 • Effective after March 31, 1993 • Guidance on factors independent auditor should consider when entity uses a service organization • Guidance for reports on processing of transactions by a service organization • Effect of IT on the consideration of internal control
36
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SAS, SSAE & SOC Reports Statement on Standards for Attestation Engagements (SSAE) 16 & 18 • SSAE 16 • Published by AICPA in April 2010 to replace SAS 70 • Brought standards in line with International Federation of Accountants (IFAC) • SSAE 18 • Effective May 1, 2017 – supersedes SSAE 16 • Requires companies to take more control & ownership of internal controls related to vendor management
37
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SAS, SSAE & SOC Reports System and Organization Controls (SOC) Reports • Designed to help service organizations build trust • There are three types of SOC reports: • SOC 1 – Internal Control over Financial Reporting • SOC 2 – Trust Services Criteria • SOC 3 – Trust Services Criteria for General Use Report
38
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Operations, Internal Controls & Audits
Recordkeeping
Internal Routines & Controls
Audit Function
Call Reports
39
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Call Reports
FFIEC Call Report
State Specific Requirements
40
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Resources • FDIC: Audits & Accounting Issues https://www.fdic.gov/regulations/examinations/trustmanual/section_2/fdic_section_ 2-internal_controls_and_auditing.html#audits_and_accounting_issues • SOC for Service Organizations https://www.aicpa.org/interestareas/frc/assuranceadvisoryservices/serviceorganiza tion-smanagement.html • FFIEC Call Report Requirements https://www.ffiec.gov/forms041.htm
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Virtual Trust Examiner School Asset Management
1
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Session Learning Objectives: 1. Discuss different types of investments and securities used by trust departments and trust companies
2
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Session Learning Objectives: 2. Understand the role of policies, procedures, and practices
3
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Session Learning Objectives: 3. Discuss how to approach asset review & how to assess asset quality
4
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Session Learning Objectives: 4. Understand the key factors to review related to asset management
5
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Session Learning Objectives: 5. Discuss what is required for investment reviews
6
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Session Learning Objectives: 6. Understand the implications related to insurance for real and personal property
7
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Session Learning Objectives: 7. Apply concepts to exam scenario exercises.
8
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Discussion Topics
Investments & Securities
Asset Quality
Policies, Procedures & Practices
Investment Reviews
Insurance for Real & Personal Property
Asset Review
9
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Investments & Securities
10
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Investments & Securities
Types of Investments: Cash Management
Fixed Income Products
Equity Securities
Unique or Hard-to-Value Assets
Mutual Funds
11
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Investments & Securities
Examples of Investments: Money Market Funds
Municipal Bond Issues
Exchange Traded Funds
Limited Partnerships
Real Estate
12
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Investments & Securities
Asset Allocation Models: Range from conservative to aggressive
• Conservative = less risky • Aggressive = more risky Approach to allocation models & percentages vary, but must be documented
13
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Investments & Securities
Examples of Asset Allocations:
Capital Preservation
Income/Modest Growth
Balanced
Growth/Modest Income
Other Asset Mix
Growth
14
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Policies, Procedures & Practices
15
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Policies, Procedures & Practices
Trust Company or Department Practices
Policies & Procedures
16
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Policies, Procedures & Practices
Review & Approval
Policy Exceptions
Unique Assets
17
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Asset Review
18
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Asset Review
Review
Determine
Consider
19
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Asset Review
Size or Circumstance
Titles
Risk
20
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Asset Quality
21
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Asset Quality Are holdings in line with investment objectives?
How often are unique assets being valued?
Are letters of retention obtained?
Annual reviews of Irrevocable Life Insurance Trusts (ILITs)?
22
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Asset Quality
Compliance with governing document?
Written authorizations obtained?
How are worthless assets tracked & addressed?
23
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Investment Reviews
24
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Investment Reviews
Annual Documented Reported Follow up Independence
25
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Investment Reviews
Explain the process Benchmarking Statement of Principles of Trust Department Management
26
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Insurance for Real & Personal Property
27
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Insurance for Real & Personal Property Insurance in place? Current? Who is paying for it?
28
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Insurance for Real & Personal Property Is amount sufficient? Tracking premium due dates?
29
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Resources • FDIC Trust Examination Manual – Asset Management https://www.fdic.gov/regulations/examinations/trustmanual/section_3/f dic_section_3-asset_management.html
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Virtual Trust Examiner School Account Administration
1
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Session Learning Objectives: 1. Discuss types of accounts
2
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Session Learning Objectives: 2. Discuss custodian responsibilities
3
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Session Learning Objectives: 3. Discuss ERISA and employee benefit accounts
4
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Session Learning Objectives: 4. Discuss self-directed IRAs
5
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Session Learning Objectives: 5. Understand special need trusts
6
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Session Learning Objectives: 6. Discuss stale estates
7
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Session Learning Objectives: 7. Understand the differences between discretionary and non-discretionary investment authority
8
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Session Learning Objectives: 8. Discuss unique and hard-to-value assets
9
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Session Learning Objectives: 9. Understand the nuisances of co-fiduciary accounts
10
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Session Learning Objectives: 10. Review compliance and related issues
11
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Session Learning Objectives: 11. Discuss guidelines for selecting accounts for review
12
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Session Learning Objectives: 12. Discuss account
review line sheet procedures, best practices, and common issues
13
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Session Learning Objectives: 13. Apply concepts to an examination scenario
14
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Discussion Topics
Account Line Sheets
Selection of Accounts
Discretionary / Non Discretionary
Types of Accounts
File Review
Custodian ERISA
15
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Discussion Topics
Unique & Hard-to Value Assets
Self Directed IRAs
Special Needs Trust
Co Fiduciary Accounts
Stale Estates
Compliance
16
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Types of Accounts
Court Appointed
Charitable Trusts
Personal Trusts
Corporate Trusts
SNTs
ILITS
17
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Types of Accounts
Investment Management
Agencies
Estates
Employee Benefits
ESOPs
IRAs
18
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Custodian Responsibilities Custody Account: An agency account concerning which the main duties of the custodian (agent) are to keep safe and preserve the property and to perform ministerial acts with respect to the property as directed by the principal. The agent has no investment or managerial responsibilities. To be distinguished from managing agency account and safekeeping account. Agent: A person who acts for another person by the latter's authority. The distinguishing characteristics of an agent are (1) that he acts on behalf and subject to the control of his principal, (2) that he does not have title to the property of his principal, and (3) that he owes the duty of obedience to his principal's orders. https://www.fdic.gov/regulations/examinations/trustmanual/appendix_h/appendix_h.html
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Custodian Responsibilities
Safekeeping
Annual reconciliation of holdings
Statements provided to appropriate parties
20
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ERISA/Employee Benefit Accounts
ERISA: An acronym for the Employee Retirement Income Security Act of 1974 which set up federal minimum standards for employee benefit plans, including standards regulating the conduct of plan fiduciaries and trustees. The Act also established an insurance program designed to guarantee workers receipt of pension benefits if their defined benefit pension plan should terminate.
https://www.fdic.gov/regulations/examinations/trustmanual/appendix_h/appendix_h.html
21
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ERISA/Employee Benefit Accounts
https://www.fdic.gov/regulations/examinations/trustmanual/section_5/section_v.html
22
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ERISA/Employee Benefit Accounts Conformance with ERISA
Plan document: • What type is it? • What is trust company/department’s role? • Original plan date • Has there been a restatement of the plan?
23
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ERISA/Employee Benefit Accounts Important to look at: • Participant loans • Employer securities or real property • IRS favorable determination letters • Summary plan description • Form 5500 • Premium Benefit Guarantee Corporation (PBGC) filing • Prohibited transactions
24
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Self-Directed IRAs Regional Director Memorandum 98-058 June 23, 1998
Three minimum disclosures: • Not insured by the FDIC
• Not a deposit or obligation of, or guaranteed by, the institution • Subject to investment risks, including possible loss of principal
25
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• If the accounts are not trust accounts, they should be reviewed as part of the Nondeposit Products under the above RD Memo Self-Directed IRAs Regional Director Memorandum 01-035 September 5, 2001
26
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Self-Directed IRAs – Exam Concerns Account Documentation
Assets & Asset Valuations
Accounting Records
27
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Self-Directed IRAs – Exam Concerns Investment Advice
Illegal Investments
Recordkeeping
28
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Self-Directed IRAs – Exam Concerns Audit/Independent Review
Insurance
29
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Special Needs Trust • A legal arrangement that provides access to funding for someone who is physically or mentally disabled or chronically ill • To help pay for expenses such as education, housing, transportation, and health care not covered by insurance • Are irrevocable and created by a grantor typically who is the parent or guardian
30
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Special Needs Trust • Account investments and earnings will not disqualify the individual’s eligibility for the public assistance disability benefit such as SS and Medicaid • Accounts are FDIC insured up to $250,000
31
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Special Needs Trust Review:
• Governing document • Any court orders • Policies & procedures • Volume of accounts • Distributions
32
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Stale Estates
18 months or older
Court accounting records
Officer’s Questionnaire
33
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Discretionary/Non-Discretionary
Definitions: •Discretionary ‐ fiduciary makes investment decisions at their discretion for a clients account without the client’s consent for each trade •Non ‐ Discretionary ‐ investment decisions are directed by the client before the transaction takes place
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Discretionary/Non-Discretionary
Discretionary: •Appropriate investment reviews required • Include more in account review sample •Distribution approvals • Investments within stated objectives
35
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Discretionary/Non-Discretionary
Non ‐ Discretionary: •Annual investment reviews not required • Include a few in account review sample
36
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Unique & Hard-to-Value Assets
Policies & Procedures Evaluations – timing & frequency Letters of Retention Assets booked & valued
37
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Unique & Hard-to-Value Assets
Consistency Safekeeping Secure & inventoried Insurance
38
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Co-Fiduciary Accounts
Shared administration of an account with another fiduciary
Guardian of the Person
Family interests
Corporate fiduciary
39
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Co-Fiduciary Accounts
Act in unison
Reasonable care
Responsibilities
Standards of care
40
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Co-Fiduciary Accounts
Documentation is key
Physical control of account assets
Joint responsibility for administration
Disinterested or uncooperative co ‐ fiduciary
41
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Co-Fiduciary Accounts Review:
• Governing document or court appointed • Proper approvals for all activity • Loan activity
42
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Compliance
• Policies & procedures • Account opening & closing procedures • Bank Secrecy Act/Anti-Money Laundering (BSA/AML)
• Laws & regulations • Conflicts of interest
43
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Guidelines for Selection of Accounts Non ‐ Approved Assets High Cash Balances Asset Concentrations Recently Opened or Closed Prior Exam Issues
44
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Guidelines for Selection of Accounts Variety of Each Capacity Trustee & Co ‐ Trustee Agent, Custodian, etc. Riskier Account Types Accounts with Unique Assets
45
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Account Line Sheets
Approach varies •Regulatory Agency •Account type
46
Internal Use Only
Account Line Sheets
Information on the line sheet •Confirms what is on synoptic record • Examples: • Date & type of governing document • Investment objective • Dates of annual reviews • Asset allocation • Discretionary distributions
47
Internal Use Only
Account Line Sheets
Issues at prior exams •Review at current exam to determine if corrected
48
Internal Use Only
Account Line Sheets
Investment authority • Is the trust company/department managing the investments? • Is an external company involved?
49
Internal Use Only
Account Review Procedures & Best Practices Start with synoptic record
Review statement preparation
Verify fee calculations
Court documentation
50
Internal Use Only
Account Review Procedures & Best Practices Account holdings as of review date
Account activity since prior exam
Partner with experienced trust examiner
51
Internal Use Only
Account Review – Common Issues Investments not within stated objective
Annual reviews
Account opening information
52
Internal Use Only
Account Review – Common Issues
Non ‐ compliance with governing document
Written direction
53
Internal Use Only
Personal Trust Line Sheet Walk Through • Synoptic Record • Trust Agreement • Investment Policy Statement • Line Sheet
54
Internal Use Only
55
Internal Use Only
Resources • FDIC: Compliance/Account Administration - Personal and Charitable Accounts https://www.fdic.gov/regulations/examinations/trustmanual/Section_4/section_iv.html • FDIC: Compliance/Account Administration – Employee Benefit Accounts https://www.fdic.gov/regulations/examinations/trustmanual/section_5/section_v.html
56
Internal Use Only
Resources • FDIC: Account Administration – Corporate Trust Accounts https://www.fdic.gov/regulations/examinations/trustmanual/section_6/section_vi.html • FDIC: Compliance – Pooled Investment Vehicles https://www.fdic.gov/regulations/examinations/trustmanual/section_7/section_vii.html
57
Internal Use Only
Resources • FDIC: ERISA – Prohibited Transactions https://www.fdic.gov/regulations/examinations/trustmanual/appendix_e/e_erisa.html#statute_prohib itedtransactions • Department of Labor – ERISA Advisory Opinions https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions • OCC Handbook – Unique and Hard-to-Value Assets https://www.occ.treas.gov/publications-and-resources/publications/comptrollers handbook/files/unique-hard-to-value-assets/index-unique-hard-to-value-assets.html
58
Internal Use Only
59
For Training Purposes Only
For Training Purposes Only
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LIVING TRUST
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Internal Use Only
For Training Purposes Only
Personal Trust Line Sheet
Account Name : Henry F. Potter Trust
Bank Name : BB&L Trust Company Examiner : Mr. Carter Exam Start Date : 5/8/2023 Reviewed as of date : 3/30/2023
Account Number : 120000
Administrative Officer : George Bailey Total Assets (MV) : $1,142,034 Date of last administrative review : 1/22/2023 Reviewer Name : Uncle Billy Bailey
Date of last investment review : George Bailey
Reviewer Name : 1/22/2023
Governing Instrument: ☐ Revocable/Grantor ☒ Irrevocable
Trust Department Capacity: ☐ Trustee ☒ Co-trustee w/Martha C. Potter, wife ☐ Successor Trustee
Other Parties to Agreement: ☐ Directed Trust ☐ Trust Protector ☒ N/A
Date of Governing Instrument :
Date of Amendments/Revisions :
12/12/97
Purpose of Governing Instrument : Establish a living trust. Settlor died 11/18/99.
Dec 2016 documents: Resignation of Co-Trustee; Declination of Nominated Successor Trustee; Acceptance of Alternate Successor Trustee; Trustee Change Form for Schwab Brokerage
Adequate CIP/BSA/AML/OFAC ☒ Yes ☐ No ☐ N/A
Fee: ☒ Adopted Fee Schedule ☐ Other (Negotiated) Fee Charged: ☒ Monthly ☐ Quarterly ☐ Annually
Provisions for Distribution of Income : Quarterly to Settlor’s wife (Article 7)
Provisions for Principal Invasions or Distributions : health, education, maintenance, and support and consistent with accustomed standard of living. For health ins premiums for wife. And/or through wife’s last will and testament and/or inter vivas instrument (Article 7) Is the bank complying with requirements for distribution of principal ? ☒ Yes ☐ No ☐ N/A If no, please explain: If closed, were appropriate closing procedures followed ? ☐ Yes ☐ No ☒ N/A
Is the bank complying with requirements for distribution of income ? ☒ Yes ☐ No ☐ N/A If no, please explain:
Date trust was terminated ? (if applicable) N/A
System Records (please explain any ‘no’ answer) 1. Is the synoptic record accurate? ☒ Yes ☐ No 2. Is the account coded correctly? ☒ Yes ☐ No 3. Are there appropriate ticklers? ☒ Yes ☐ No 4. Shareholder Communication Act Disclosure A. Proxy Voting /Proxy Material ☒ Bank ☐ Client ☐ Client option B. Share Client’s Name with Issuer ☒ OBO ☐ NOBO ☐ Client option
Documentation of Client Contact (please explain any ‘no’ answer) 1. When was the last formally documented contact with client? 1/26/2023 2. Does this conform to department policy? ☒ Yes ☐ No ☐ N/A 3. Does documentation of client directions for disbursements conform to policy/agreement? ☒ Yes ☐ No ☐ N/A
Internal Use Only
Conflicts of Interest (please explain any ‘no’ answer) 1. Are the following fees adequately disclosed to clients? A. Shareholder Service Fees (sweep fees) B. 12b-1 fees ☐ Yes ☐ No ☒ N/A 2. Is the use of Own-bank Savings and Time Deposits appropriate? ☐ Yes ☐ No ☒ N/A 3. Are the receipt and use of Soft Dollars adequately disclosed to clients? ☐ Yes ☐ No ☒ N/A Comments: • Investments (Attach printout) – Applicable for Investment Management Agency Investment Objective : Aggressive - 80% equities, 20% fixed Investment Authority : ☒ Sole ☐ None ☐ Shared with Investment Officer : Uncle Billy Bailey Portfolio Composition – show as % of total Asset Class Target or Model Current Allocation
Comments (Ex: how assets are valued, unique asset class compositions, special characteristics, etc.)
Cash and Equivalents
0.0%
0.6%
Equities
80%
81.5%
Fixed Income
20%
17.9%
Real Estate Non-Traditional
Overdrafts Other Liabilities
1. Investment Objective
a. Is there support for the initial allocation on file? ☒ Yes ☐ No If no, please explain: b. Does management update and document the client’s objective each year? ☒ Yes ☐ No If no, please explain: c. Is the portfolio consistent with the current investment objective? ☒ Yes ☐ No If no, please explain: d. If not, is management executing a plan to remedy the inconsistency? ☐ Yes ☐ No If no, please explain:
Internal Use Only
2. Client Directions
a. Purchase specific assets? Exclude specific assets or classes? ☐ Yes ☒ No If yes, please explain: b. Retain specific assets? ☐ Yes ☒ No If yes, please explain: c. Maintain a concentration in a specific asset or asset class? ☐ Yes ☒ No If yes, please explain: d. If yes to any of the above, is there sufficient documentation to protect the bank? ☐ Yes ☐ No ☒ N/A If no, please explain: a. Is transaction volume reasonable? ☒ Yes ☐ No If no, please explain: b. Are there assets in the account that are prohibited by the grantor or not on approved lists? ☐ Yes ☒ No If yes, please explain: c. If yes, has management approved and is management monitoring those assets? ☐ Yes ☐ No ☒ N/A If no, please explain: d. If management is not monitoring, was proper disclosure made to the client? ☐ Yes ☐ No ☒ N/A If no, please explain: e. Are all assets priced, and if not, is this disclosed to the client? ☒ Yes ☐ No If no, please explain:
3. Asset Review
Comments • Mr. Potter was formerly a partner of a subsidiary, The FIRM; fee discounted 35 bps and the minimum fee waived • Living children: Jackson W. Potter, Elizabeth A. Potter Documentation Exceptions • None noted
Internal Use Only
Virtual Trust Examiner School Conflicts of Interest
1
Internal Use Only
Session Learning Objectives: 1. Understand the importance of evaluating
investments in own bank, affiliates, or obligations of insiders
2
Internal Use Only
Session Learning Objectives: 2. Discuss broker relationships
3
Internal Use Only
Session Learning Objectives: 3. Review what is permitted related to investments in 12b-1 mutual funds
4
Internal Use Only
Session Learning Objectives: 4. Understand the importance of evaluating investments in own bank or affiliate
repurchase agreements
5
Internal Use Only
Session Learning Objectives: 5. Discuss what constitutes material inside information
6
Internal Use Only
Session Learning Objectives: 6. Review requirements related to multi account and inter-trust transactions
7
Internal Use Only
Session Learning Objectives: 7. Apply concepts to exam scenario exercises
8
Internal Use Only
Conflicts of Interest
Interest Bearing Deposits
Stocks or Obligations
Insider Investments
Broker Relationships
9
Internal Use Only
Conflicts of Interest
12B-1 Mutual Funds
Repurchase Agreements
Inside Information
Multi-Account & Inter-Trust Transactions
10
Internal Use Only
Introduction
• Duty of undivided loyalty • Avoid even the appearance of a conflict of interest
11
Internal Use Only
Conflict of Interest
• Occurs when a fiduciary’s duty of loyalty to trust customers clashes with other interests
12
Internal Use Only
Self-Dealing
• Always involve conflicts of interest • Limited to trustee dealing with itself or an affiliate
13
Internal Use Only
Contingent Liabilities
• Major sources • Possible liability
14
Internal Use Only
Contingent Liabilities - Types • Contravention of Trust • Commingling • Prudent Investor Rule • Real Estate & Mortgages • Deposits with Self • Acts without Consent/Approval • Failure to Invest
15
Internal Use Only
Conflicts of Interest
Interest Bearing Deposits
Stocks or Obligations
Insider Investments
Broker Relationships
16
Internal Use Only
Interest Bearing Deposits
Investments in own-bank or affiliate interest bearing deposits
17
Internal Use Only
Interest Bearing Deposits
Written policy for investments in own-bank or affiliates
18
Internal Use Only
Interest Bearing Deposits
Assure competitiveness by retaining documentation
19
Internal Use Only
Interest Bearing Deposits
Must be fully insured by the FDIC
20
Internal Use Only
Interest Bearing Deposits
Prohibited for accounts subject to ERISA unless plan specifically allows
21
Internal Use Only
Conflicts of Interest
Interest Bearing Deposits
Stocks or Obligations
Insider Investments
Broker Relationships
22
Internal Use Only
Stocks or Obligations
Investments in own-bank, parent company, or holding company stock or obligations
23
Internal Use Only
Stocks or Obligations
Each account holding should have specific authorization for retention
24
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