What you need to know about professional fiduciaries

Typically, individuals engage professional fiduciaries directly and voluntarily, but that isn’t always the case. Guardians are court-appointed fiduciaries charged with serving the best interests of persons legally determined to need help caring for themselves.

According to a recent op-ed in the Philadelphia Inquirer, there are roughly 1.3 million adult guardianships in the U.S. controlling more than $50 billion in assets.

Usually, family members or close friends petition the court to intercede on behalf of the person subject to guardianship. However, if the court finds that family and friends may not be ready, willing or able to serve in that capacity, a professional fiduciary may be appointed.

As the authors of the Inquirer piece pointed out, some states have laws that are antiquated and do a poor job of protecting the interests of persons subject to guardianship. Fortunately, a new model law has been released by the Uniform Law Commission to modernize existing laws and better protect the rights of individuals subject to guardianships and conservatorships — the 2017 Uniform Guardianship, Conservatorship, and Other Protective Arrangement Act, or UGCOPAA. The ULC calls the act a “statute suitable for the twenty-first century [that] should be considered for enactment in every state as soon as possible.”

UGCOPAA distinguishes between guardians and conservators (bringing clarity to terms that have overlapped in common use). Guardians “make decisions about the care and well-being of another person,” whereas conservators are “appointed by a court to manage the property of another person.”

(More: Financial abuse against the elderly most often committed by those closest to them)​

The other key term in the act’s title is “protective arrangement,” which is defined as a less restrictive alternative to either guardianship or conservatorship that is encouraged when the need for control and court monitoring is less.

Investment advisers may be engaged as a professional fiduciary to provide needed investment expertise directly through a court appointment as a conservator or indirectly as a service provider engaged by a court-appointed party to help manage the assets of individuals who are subject to conservatorships or protective arrangements. Advisers may also be asked by clients facing the possibility that a loved one may need such services to make referrals to potential guardians or conservators.

From the perspective of family and friends who recognize the need for help in these challenging situations, finding a qualified professional can be daunting. Two states — California and Arizona — have enacted laws requiring the registration of professional fiduciaries seeking to act as guardians and conservators for non-family members.

In addition to investment advisers, certain personal representatives, such as executors, trustees, persons holding durable powers for others and “representative payees” designated by the Social Security Administration to receive the monthly checks and pay bills of an individual may become registered. To do so, they must meet an experience requirement, pass an exam, and fulfill ongoing continuing education requirements. They are also subject to criminal background checks, fingerprinting, bonds, and a disciplinary review process.

California currently has about 800 registered professional fiduciaries with oversight provided by the state’s Professional Fiduciaries Bureau. California’s law also contains a broad exemption for attorneys, enrolled agents, trust company employees, CPAs and registered securities professionals acting within the scope of their business.

In Arizona, there are two types of professional fiduciaries: public and private. Oversight is provided by the administrative arm of the state Supreme Court and the standards governing both types are virtually identical, except that a public fiduciary, roughly akin to a public defender, is appointed by each county board of supervisors as a “fiduciary of last resort” when no one else is capable or willing to serve. Compensation to the public fiduciary is paid out of the individual’s estate, and may be deferred or waived if the ward’s estate has insufficient funds. A licensed fiduciary in private practice is a non-family member who services professionally for a fee.

By definition, a fiduciary is someone legally obligated to act in the best interest of another. There is no one more in need of a competent and ethical fiduciary than someone who is incapable of handling their own affairs. UGCOPAA offers the promise of establishing a comprehensive and consistent framework to administer these relationships as states across the country adopt the law. The California and Arizona laws that require registration of professional fiduciaries set minimum standards for practitioners that other states may emulate.

While legislative initiatives strengthen minimum standards over time, dedicated practitioners can set standards of excellence in the work they do with clients every day. The need is great and issues are complex; Advisers who choose to serve this segment of society are likely to find the work personally fulfilling and professionally rewarding.

(More: Fiduciary duty and the choice between active and passive)​

Blaine F. Aikin is executive chairman of Fi360 Inc. and CEFEX.