INVESTMENT
POLICY – JPMorgan’s Investment Philosophy
appears to be a Conflict of Interest -EPIC SECTION 700.1506
High use of JPMorgan's Proprietary Funds, Deposit Sweep - JPMorgan Funds Disclosure Statement
February 2010
Prudent
Investors Rule (EPIC Article I, Part 5)
History: 1998, Act 386, Eff.
Apr. 1, 2000 Popular Name:
EPIC
The
powers and duties of Trustees should be performed in a reasonable and prudent
manner on behalf of the beneficiaries and consistent with the standards of the
Michigan Prudent Investor Rule. Therefore, you shall invest prudent to
minimize risk, invest for the long-term and generate reasonable amounts of
income. To be prudent you need to ‘diversify’!
Was the rule violated?
As of 8.31. 2009:
Energy sector: 32.5 % - Financial
sector: 12.9 % -
Utility sector 1.1 % and
Technology sector only 2.9%
ESTATES AND PROTECTED
INDIVIDUALS CODE (EXCERPT) Act 386 of 1998
EPIC SECTION 700.1504: “A
fiduciary shall diversify the investments”
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Fiduciary
Duties (Investment Adviser Act of 1940)
CONFLICT OF INTEREST
Fiduciary
duty – the highest legal standard of care - requires the investment adviser to
put the client’s interests above their own and act in their client’s best
interest in all aspects of the services they provide. The duty includes
monitoring the performance of the investment manager, keeping assets invested
and maintaining detailed records showing how the decisions were made. Tax
considerations are expressly validated as a relevant factor.
As
of June 30th, 2009 a total of $ 3,598.585 or 67.6 % trust assets were
positioned in JPMorgan Funds, including 46.4
% in Money Market accounts with almost Zero yield.
"As
of Nov. 30th 2009 the JPMorgan Proprietary Funds totaled 66% and the cash
position rose to 3,158.451 or 57 % with the income showing a big reduction to $
3,103."
Who
benefits from this cash position sitting in Money Market accounts? Not the
Trust! This high cash position invested in bonds with a yield of 5% could
generate a big profit.
Did
the bank act in the trust’s best interest or
is there a ‘Conflict of Interest?
EPIC SECTION 700.1506 - Duties of fiduciary in interest of
beneficiaries
”A
fiduciary shall invest and manage fiduciary assets solely in the interest of the
beneficiaries”.
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As
part of Trust management, the trustee shall consider among other things:
General
economic conditions -
Inflationary issues and
Tax consequences of decisions.
A
rebalancing and reallocation of assets should have been done during 2007. It
appears a ‘Buy and Hold’
strategy was employed, which has proven to be a disaster reflecting in huge
losses of trust assets. Some
losses are systemic, however proper management could have prevented various
other very big losses.
In
April 2008 the Energy Sector was very bullish and the Trustee was asked in a
written request to take profits. He did not and an over 100 K gain turned into a
big loss. The account does not show rebalancing and re-allocation of assets and
only a few equities were sold.
Dec. 24th, 2008 JP Morgan Chase decided to resign due to a complaint of ‘Unsuitable Investments’ in the Residuary Trust, which were bought by the bank.
In Sept. 2009 the Bank sold various other ‘Unsuitable Investments’ and realized a loss of $ 131,103. This action resulted in an income reduction from $ 12,197. in June 2009 to $ 3,103. for November 2009. The proceeds were placed into a Money Market account, yielding almost zero interest and not benefiting the trust.
Why
did the bank buy those unsuitable investments in the first place?
In
summary, this account suffered tremendous losses
Read:
"JPMorgan
Private Wealth Management and their losses due to Negligence"
EPIC
SECTION 700.1505 - Duties at inception.
”Within
a reasonable time after accepting appointment as a fiduciary or receiving
fiduciary assets, a fiduciary shall review the assets, and make and implement
decisions concerning the retention and disposition of assets, in order to bring
the fiduciary portfolio into compliance with the purposes, terms, distribution
requirements expressed in the governing instrument, and other circumstances of
the fiduciary estate, and with the requirements of the Michigan prudent investor
rule”.
"Moreover,
http://jpmorgan-trustmanagement.gardenwebs.net\jpmorgan_fiduciary_duty.htm
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Fees and Trust Administration
We were led to believe, that JPMorgan Chase Wealth Management would handle all the accounting and tax matters and the complete Trust management and administration for a nominal fee.
"The Accountings show that
a law firm at an hourly rate between appr. $ 190.00 to $ 350.00 did the complete
Trust Administration, resulting in fees of 171,323.31 as of 2.28.2010".
The sale of the company's airplane shows legal fees of $ 9,037. plus several thousand
dollars of expenses when customarily a 6% commission is paid for the same
service.
The JPMorgan Chase Trust Management deducted from the trust Fiduciary
Fees of $ 185,530. plus $ 8,826. from the IRA - a total of $ 194,356. for active
trust management, investing of funds, tax matters and other matters.
The law firm performed most services that should have been done by JP Morgan Chase Bank. The overall cost of mutual funds added another 2.4 % or more to the management fees. It appears like triple dipping.
In
comparison Smith Barney charges for Estate Settlement a fee of 2 % of the total
assets.
EPIC
SECTION 700.1508
”In investing and managing fiduciary assets, a
fiduciary may only incur costs that are appropriate and reasonable in relation
to the assets, the purposes of the fiduciary estate, and the skills of the
fiduciary”.
Conclusion:
"JP Morgan Investment Management and Strategy - A
Conflict of Interest"