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

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Prudent Investors Rule (EPIC Article I, Part 5)
History:
1998, Act 386, Eff. Apr. 1, 2000  Popular Name: EPIC

DIVERSIFICATION 

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’!

"
It appears, the investment activities in the trust were reckless and incompetent, resulting in large account balance reductions, as they were improperly diversified, not balanced and some of high-risk nature."        
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”.

"JPMorgan Funds Disclosure Statement shows the following":

Their professionals are paid a salary plus discretionary bonus. The amount of revenue resulting from sales of products to clients may be considered as one of several factors in determining a client-facing professional bonus. JPMorgan Asset Management may receive more revenue from sales of JPMorgan Funds than from sales of funds managed by external parties, because it receives compensation for providing JPMorgan Funds investment advisory, administrative and other services.

Note: JPMorgan readily and openly admits that it pays its employees greater compensation if they are able to invest in their own proprietary funds. Has this occurred in this case? 

Notes on Deposit Sweep (Page 5):
The deposit sweep uses a bank deposit held on your behalf with Chase Bank USA, N.A. or JPMorgan Chase Bank, N.A., wholly owned subsidiaries of JPMorgan Chase & Co. 
JPMorgan may receive certain benefits from having client accounts' cash balances deposited in the Deposit Sweep, including providing Chase Bank USA, N.A. and JPMorgan Chase Bank, N.A. with additional liquidity in the form of clients deposits.


Note: JPMorgan readily and openly admits that their clients accounts cash balances benefit JPMorgan. 
Was there a conflict of interest?

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TRUST MANAGEMENT 

Fiduciaries are expected to meet the prudent-man standard in the execution of their duties, which must always be conducted for exclusive benefit of beneficiaries.

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. Every investment sold was deposited into a 'cash' account.

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? Who benefits from this ?????

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, tremendous potential gain in the value of the Trust assets has been lost due to JP Morgan's decision to keep more than fifty (50%) percent of the assets in a cash position. While the best stock market rally in 75 years was taking place (from mid March 2009 to the present day) JP Morgan Wealth Management kept approximately $ 2.8 to 3 million in cash. This decision is clearly in violation of MCL 700.1505."   

JPMorgan Chase Asset Management:
http://jpmorgan-trustmanagement.gardenwebs.net\jpmorgan_fiduciary_duty.htm

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Fees and Trust Administration

JPMorgan TRUST ADMINISTRATION -  JPMorgan FEES

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"