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Choosing an Investment Advisor for a Special Needs Trust

July 26, 2012

Trustees of special needs trusts have a duty to properly manage the funds in their care. However, most trustees, especially non-professional ones, are not sophisticated investors and they should not be directly managing the investment of large sums of money. This does not mean that the trustee of a special needs trust should simply toss the trust funds into a savings account and be done with it. On the contrary, a trustee needs to grow the trust principal as best he can, keeping in mind the current and future needs of the trust's beneficiary. In many cases, this means that the trustee should hire a professional investment advisor.

There are countless investment professionals out there to choose from -- so many, in fact, that the choice of an investment advisor can quickly become overwhelming. The Web site of the Securities and Exchange Commission (SEC) offers several tips for beginning investors who are seeking to hire an investment professional. According to the SEC, investors should know exactly what services they are looking for prior to interviewing advisors, and they should find out what services their potential investment advisor provides, how much those services cost, and how and when the advisor gets paid.

These threshold questions are important, but the SEC also recommends asking each potential advisor a battery of specific questions, including questions about their experience, education and employment history, whether the advisor is limited to recommending a certain set of products and whether the advisor is registered with the SEC or with a state licensing agency. Trustees should also understand the various types of fee structures utilized by investment advisors, including a percentage fee based on the total assets under management, an hourly system, a fixed fee or a commission based on the products sold.

Trustees of special needs trusts have slightly different needs than typical investors, and, if possible, they should work with advisors who are flexible and who already have experience investing the funds of special needs trusts. Trustees should also be aware that hiring a poor financial advisor could lead to a breach-of-fiduciary duty claim against the trustee, so more detailed background checks and due diligence are required than if the trustee were an individual investor.

To learn more from the SEC about selecting an investment advisor, click here.

To review the standards for Certified Financial Planners, a subset of advisors who have chosen to pursue accreditation, click here.

DISCLAIMER:The information contained in this website is based on Oregon law and is subject to change. It should be used for general purposes only and should not be construed as specific legal advice by Fitzwater Meyer Hollis & Marmion, LLP or its attorneys. Neither this website nor use of its information creates an attorney-client relationship. If you have specific legal questions, consult with your own attorney or call us for an appointment.