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Incentive Progarms and Trust Account Investments

Answered by: 
Randy Carey

Question: 
We recently inquired if we could use self-deposit investments where the bank is acting as Trustee. We have received a legal opinion stating that we can use self-deposit investments so long as we document our due diligence, the trust allows for the investment, and our Money Market Account (MMA) is a competitive rate. We are currently discussing a referral incentive program which would include our Trust Division. I have read a lot of guidance between FDIC, OCC, and FRB, but I am not seeing anything that speaks to my particular situation. Can a Trust Officer use a self-deposit investment as Trustee and still receive a referral incentive for this transaction? I personally feel like this is a conflict of interest and somewhat, self-dealing. However, I am not seeing anything stating this would be an issue per se. I am only running into nonretail deposit and broker/dealer requirements. I have also looked through Arkansas code (our state) and I could not see anything that spoke on this particular situation. If you have any insight or could point me in the right direction to help confirm or rebuttal my though process, I would really appreciate it!
Answer: 

I personally feel like this is a conflict of interest and somewhat, self-dealing.

I concur. The Trustee should not personally benefit from the placement of trust funds anywhere.

Also, from the FDIC Trust Examination Manual:

A fiduciary has a duty to avoid conflicts of interest and self-dealing. However, total avoidance is not always possible. Furthermore, while the terms conflicts of interest and self-dealing are somewhat self-descriptive, they should not automatically be equated with exploitation or abuse by the fiduciary. For example, the use of own-bank deposits as a trust investment is by definition a conflict of interest and self-dealing, since the bank is investing funds held as a fiduciary with itself. Yet this action, in itself, is not necessarily abusive or detrimental to the interests of account beneficiaries. Before such investments are determined to be abusive or detrimental, an analysis of the facts surrounding the investment must be made by the examiner.

If the trustee is being personally compensated by the bank for the placement of the funds - good luck in explaining this to an examiner.

First published on 01/21/2024

Filed under: 
Compliance
Filed under compliance as: 
Trust Accounts
Promotional Incentives

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