LynchOppenheimer - FINAL 18-PITCH-14 Lynch Presentation

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Darryl J. LynchExecutive Director – Investments500 108th Avenue NE, Suite 2100Bellevue, WA 98004 Phone: (425) 709‐0404

Peter C. PalumboDirector – InvestmentsOne North Brentwood Blvd. Suite 600St. Louis, MO 63105 Phone: (314) 854‐3722

National Guardianship Association October 15, 2018

8 Questions to Ask YourFinancial Advisor and How Bonding Can Reduce Your LiabilityFiduciary Ethics

Bond Program

Kimberly M. EdgarVice President – Surety Underwriting

1717 Hidden Creek CourtSt. Louis, Missouri 63131Phone: 314‐965‐3333 x128

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Working with Your Financial Advisor

• Overview of NGA Standards of Practice

• Ways to Apply the Principles of the Uniform Prudent Investor Act to Guardians, Conservators and Estates

• Blocking or Restricting Accounts to Reduce Bonding Costs and Liability

• Fiduciary responsibilities vs. liabilities:

— Eight questions to drive the conversation with your Financial Advisor

— Ethical objective decision making vs. subjective opinions

— Establishing and monitoring guardian investment accounts

Uniform Prudent Investors Act of 1994

43 States have adopted the Uniform Prudent Investor Act of 1994

Source: uniformlaws.org

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National Guardianship AssociationDefines Fiduciary As…

Any person that has the responsibility to invest and manage the assets of another person is a fiduciary.”

“

Source: National Guardianship AssociationThis is not a legal definition nor an indication of the statue of Oppenheimer & Co. Inc. or any of

its associates. This is provided for informational and education purposes only.

Distinction of the Prudent Investor Rule

• Total Portfolio Evaluation

• Risk

• Process

• Diversification

• Monitoring

• Delegation

• Documentation

• Modern Portfolio Theory

Source: Uniform Prudent Investor Act of 1992

“The prudent investor rule is a test of conduct and not of resulting performance.”

(760 ILCS 5/5) (from Ch. 17, par. 1675)

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NGA Standard – Guardian of the Estate: Initial & Ongoing Responsibilities

The guardian shall develop and implement a financial plan and budget for the management of income and assets that corresponds with the care plan for the person and aims to address the goals, needs and preferences of the person. The guardian of the estate and the guardian of the person (if one exists) or other health care decision‐maker shall communicate regularly and coordinate efforts with regard to the care and financial plans, as well as other events that might affect the person.

A. Guardian shall value the well‐being of the person over the preservation of the estate.

B. Guardian shall maintain the goal of managing, but not necessarily eliminating risks.

National Guardianship AssociationStandards of Practice

Source: National Guardianship Association

National Guardianship AssociationStandards of Practice (cont’d)

NGA Standard – Guardian of the Estate: Initial & Ongoing Responsibilities

The guardian shall take all steps necessary to obtain a bond to protect the estate, including obtaining a court order.

The guardian shall prepare an inventory of all property for which he or she is responsible. The inventory must list all the assets owned by the person with their values and cost basis. The appointed guardian must independently verify these facts.

All accountings must contain sufficient information to clearly describe all significant transactions affecting administration during the accounting period. All accountings must be complete, accurate, and understandable.


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Ethical Decision Making

Responsibility vs. Liability

• Fiduciary responsibilities can be shared but not abdicated.

• Fiduciary liability exposures exist where there are unfulfilled responsibilities.

• Fiduciaries can reduce liability by identifying and filling gaps in their practices.

1. Employ and provide the client information on the Prudent Practices when serving as an investment fiduciary.

2. Act with honesty and integrity and avoid conflicts of interest, real or perceived.

3. Ensure the timely and understandable disclosure of relevant information that is accurate, complete and objective.

4. Be responsible when determining the value of services and form of compensation.

Fiduciary Code of Ethics

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5. Know the limits of expertise, and refer clients to colleagues and/or other professionals in connection with issues that go beyond the scope of knowledge and skill set.

6. Respect the confidentiality of information acquired in the course of work, and not disclose such information to others, except when authorized or otherwise legally obligated to do so. Do not use confidential information acquired in the course of work for personal advantage.

7. Not exploit any relationship or responsibility that has been entrusted.

Fiduciary Code of Ethics (cont’d)

• Confirm investment goals and objectives

• Approve appropriate asset allocation strategy

• Establish or approve an explicit, written IPS/Investment Proposal

• Prudently select service providers

• Incur only reasonable expenses

• Monitor the activities of the overall investment program, including service providers

• Avoid conflicts of interest

• Documentation

As Guardian You Are Always Responsible for the Following:

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Eight Questions to Ask Your Financial Advisor

1. Will the Advisor act as a fiduciary in all scenarios when managing portfolio assets?

2. How long has the Financial Advisor been acting in this fiduciary capacity? Describe your experience acting as a fiduciary advisor.

3. What fiduciary training has the Financial Advisor received? Any designations focused on fiduciary best practices?

Eight Questions to Ask Your Financial Advisor (cont’d)

4. Provide at least three references of clients who are using your services in your capacity as a fiduciary advisor.

5. Please disclose and describe any potential conflicts of interest.

6. What services are provided to help clients meet their fiduciary obligations?

7. Describe your total compensation or fees received for your proposed services.

8. What safeguards and procedures do you have in place for blocked or restricted accounts?

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•The Bar Plan Surety and Fidelity Company

(TBPS&F), was incorporated in 1998.

• The Bar Plan is licensed to write court bonds in

all 50 states and the District of Columbia.

…about The Bar Plan

• What is a Surety Bond?

• Types of Surety Bonds

• Why do you need a Surety Bond?

• Cost of a Surety Bond

What we will cover

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What is a Surety Bond?

The bond is to guarantee that the Principal will perform his promise or obligation to the Obligee.

Principal: Promises money to Obligee if case is lost

Surety: Guarantees promise

Obligee

Surety Bond Overview

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If the Principal doesn’t perform his promise or obligation to Obligee, a claim will result and the Principal is obligated to pay the claim.

Principal’s Liability

Principal Obligeeowes money to Obligee

If the Principal cannot pay the claim, the Suretymust pay for him.

Pays the Obligee

Obligee$$$$$$$

Surety

Principal’s Liability

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Surety Indemnification

The Surety then has a right of reimbursement (called indemnification) against the Principal.

Indemnification SuretyPrincipal

$$$$$

Types of Surety Bonds?

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• Fiduciary (Administrator, Executor, Conservator, Small Estate)

• Public Official Bonds

• Notary Bonds

• Court Bonds (Appeal, Replevin, Injunction, etc.)

Common Bond Types

Fiduciary Bonds

(Administrator, Executor, Conservator, Small Estate, etc.)

Generally, a fiduciary bond is issued to a person (the fiduciary) who is appointed by a court to take care of the assets of a person who has died or is incompetent.

The court determines whether a bond will be required and the dollar amount of the bond. The amount of the bond is based on the assets in the estate.

The Bond guarantees that the fiduciary will perform his responsibilities according to law.

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Why do you need a Surety Bond?

•Protect those interested in the

estate, such as heirs and creditors

•Protect the estate assets from loss

•Protect the public

Common Goals

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• Credit Report

• Signed Indemnity Agreement

Tools Used Underwriting Bonds

An Underwriters view on Guardianship Bonds • Credit Report of Applicant (Review report in its entirety)

• Bankruptcies• Foreclosures• Past dues• Public records

• Applicant’s Background • Length of employment• Do they own a house?• Relationship to the ward

• Is the applicant a Certified Guardian?• If so, how many years of experience • In good standing?

Underwriting Guardianships

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An Underwriters view on Guardianship Bonds • Assets of the Estate

• Cash• Real Estate – Will this be sold?• Securities/Investments • Who is handling the management of these assets?

• Will any of these liquid assets be restricted?• If dealing with Investments, will the investment manager

comply with a restriction of the estate assets?• Expenses of the Estate

• Do you have a maintenance and support order?• Will you maintain a working account?


An Underwriters view on Guardianship Bonds

• Will any of these liquid assets be restricted?

What does restriction of estate assets mean?

“Restrictions upon the fiduciary’s authority to access,

manage or transfer the estate’s assets. This includes restricting

the fiduciary from withdrawing funds from an estate account

without prior court order.”


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An Underwriters view on Guardianship Bonds •Parameters for Restriction of Assets

Initial Inventory

Bond Amount Requested

Liquidity of Assets

Borderline Credit Report

Number of potential heirs

Dissention amongst the potential heirs

Parameters for Restriction of Assets

An Underwriters view on Guardianship Bonds • Will you maintain a working account?

What is a Working Account?

An Estate Account (Usually Checking Account) that a Fiduciary

maintains for the Ward’s ongoing expenses. The amount to be placed in

the Working Account is usually determined and supported by the

Maintenance and Support Order granted by the court outlining authorized

expenditures which may be paid from the Estate Funds.


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An Underwriters view on Guardianship Bonds • Restriction of Assets and Reduction of Bond Amount

If there are no ongoing expenses in the estate, then as a bonding company we would ask for restriction of the assets and a reduction in the bond amount. A reduction of the bond amount would reduce your bond premiums, which in turn would preserve the assets of the estate. Example: $1 Million in assets

Bond Required - $1 Million Bond Premium for 1 year - $2,346 approximately

Example of Restricted Account: $1 Million in assets$1 Million Restricted Bond Required - $1,000 Bond Premium for 1 year - $100.00


An Underwriters view on Guardianship Bonds • Restriction of Assets and Reduction of Bond Amount

If there are ongoing expenses in the estate, then as a bonding company we would ask for restriction of the assets on assets in excess of what is needed for the working account. In addition you should petition the court for a reduction in the bond amount to cover only the working account. A reduction of the bond amount would reduce your bond premiums, which in turn would preserve the assets of the estate. Example: $1 Million in assets

Bond Required - $1 Million Bond Premium for 1 year - $2,346 approximately

Example of Restricted Account with Working Account: $1 Million in assets$950,000 Thousand Restricted $50,000 in Working Account Bond Required - $50,000 Bond Premium for 1 year - $289.00


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• Pros of Working with an Investment Manager

Trained Professional with Investing/Managing Money

Experienced in Preserving Assets

Assessing Risk with Investments

Proper Diversification

Experienced with the Prudent Investor Rule

Suitability

Investment Manager


• Once the bond has been issued, the bonding company will continue to monitor the estate and it’s assets:

Review of the Initial Inventory

Review of the Annual Accountings

Maintenance and Support Order

Monitoring Assets

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Cost of a Surety Bond?

Cost

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What is important

•Fast turnaround time (24 hour turnaround policy)

•Competitive Pricing

•Attorney-Managed Underwriting (Allows for flexibility in understanding the legal issues)

•Web-enabled platform (www.onlinecourtbonds.com)

•Will work with both a local insurance agent or with the attorney/public administrator directly

•Pro-Active Risk Management (Risk Management materials)

• Creating and maintaining a comprehensive plan, strategy or policy statement / Investment proposal that documents the processes and procedures that will be used to manage the portfolio.

• IPS/Investment Proposal should have:

Sufficient detail for a competent third party to implement;

Not so detailed to require constant revisions and updates.

Questions to Ask & Ethical Decision Making

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• Applying objective standards vs. subjective opinions for evaluation and recommending appropriate investment options.

• Monitoring and reporting portfolio performance.

• Understanding their important fiduciary roles, responsibilities and obligations.

Questions to Ask & Ethical Decision Making (cont’d)

How to Apply the Prudent Investor Rule for Guardians, Conservators and Trustees

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The Hierarchy of Decisions

Most Important

LeastImportant

Time Horizon‐Investment Strategy

Managers/Funds

Sub‐Asset Classes

Mix among Asset Classes

Asset Classes Considered

Appropriate level of risk/return

Evaluate the Clients Needs

• Time Horizon

• Age & Health Evaluation

• Total Investable Assets

• Income Sources

• Annual Expenses

• What is the short fall, if any?

• Anticipated large withdrawals? i.e. education

• Additional income from other sources?

• Limitations or restrictions on Investments?

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Investment Policy Statement/Investment Proposal

Should Include…

• Statement of Fiduciary Relationship

• Purpose of the Investment Policy Statement / Proposal

• Rules and responsibilities of parties Involved

i.e. Oversight monitoring: performance, advisor, allocation, conflict of interest, documentation, and manager selection

• Financial Advisor responsibilities

• Investment objectives

Investment Policy Statement/Investment Proposal (cont’d)

• Investment Allocation Model

Capital Preservation, Income, Balanced Income, Balanced Growth, Growth

• Investment Time Horizon

• Investment Selecting & Future Considerations

• Rebalancing Frequency

• Annual Costs

• Court Blocking or Restriction Requirements

• Adoption Agreements to be signed by Guardian & Financial Advisor

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Investment Models

100%

30%

70%

Fixed Income

Equity

Capital Preservation Income

Balanced GrowthBalanced Income

40%

60%

75%

25%

50%50%

MODEL FACTS:

Low Cost Index Funds

No Load Actively Managed Mutual Funds

Proper Diversification among Asset Classes

Optimized Number of Securities to Minimize Accounting Costs

Most Clients Fall within one of these Models

The above allocation examples are for illustrative use only and are not intended as investment advice. Please consult with your Oppenheimer Financial Advisor with any specific questions you mayhave regarding your own situation. The suggestions here may help you choose an investment program appropriate for you. Keep in mind, though, these are only suggestions made for long‐term,total‐return‐oriented investors without considering tax consequences. The use of an asset allocation suggestion does not guarantee a profit or protect against a loss in declining markets. Youshould discuss your individual situation with your investment professional to find the right balance between risk and potential reward. For more complete information about any of the funds thatmay be used including investment objectives, risks, charges and expenses, please obtain a prospectus and read it carefully before investing.

Growth

Investment Proposal Summary

The cost benefits of a transfer to the Oppenheimer & Co. Inc. Guardianship and Trust program are:

• Oppenheimer’s Annual Management Fee is 0.90%

• Provide opportunities for increased income for the client through proper asset allocation

• Oppenheimer will hold in the portfolio approximately 9 – 12 securities, thus reducing the annual accounting costs

• Maintain proper diversification & regular rebalancing

• Provide standardized performance reports quarterly

• Provide ongoing monitoring & risk evaluation to keep in compliance with the Uniform Prudent Investor Act (UPIA)

Sample Special Needs Trust

This proposal is for illustration purposes only and is not a representative of the performance of any specific investment and there is no guarantee that the hypothetical rate of return can be achieved.

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Investment Proposal Summary (cont’d)

This proposal is for illustration purposes only and is not a representative of the performance of any specific investment and there is no guarantee that the hypothetical rate of return can be achieved.

Establishing a New Account

• Account Title

• Guardianship or Trust

• Total Investable Assets

• Age of Client

• Guardian Information

• Letters of Guardianship

• Allocation Model

• Beneficiary, Settlor & Trustee Information

• Source of Funds

• Bank Information

• Risk Tolerance

• Objectives

• Blocking Receipt

• Online Access

Please Note: Guardian must notify Advisor of an existing client’s death and provide a Death Certificate in a timely manner.

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Anti‐Money Laundering (AML)

Firms must comply with the Bank Secrecy Act and

its implementing regulations (“Anti‐Money

Laundering rules”). The purpose of the AML rules

is to help detect and report suspicious activity

including the offenses to money laundering and

terrorist financing, such as securities fraud and

market manipulation.

Cost of Managing an Investment Portfolio

• Stock‐picking and market‐timing can be dangerous and counterproductive.

• Independent financial advisors (especially flat‐fee or fee‐for‐service advisors) are valuable to the fiduciary (1% or less).

• Mutual funds are often an easy way to satisfy multiple fiduciary obligations, including diversification, lower management cost and built‐in management. Index funds are more efficient to fiduciaries.

• Investment costs need to be considered.

What is the importance of class shares of Mutual Funds in a portfolio

and their internal costs.

Actively managed funds charge higher administrative fees.

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Cost and Fee Structure

• Do not forget to consider the tax effect. Generally speaking, mutual

funds will have less capital gains tax consequences than actively

managed accounts. Index funds will usually have less tax

consequences then actively managed funds. But dwarfing all of that,

will be the income tax effect of liquidation of all assets transferred to

a fiduciary in order to permit the fiduciary to reinvest according to

his, her or its investment strategy.

• Optimize number of securities to minimize actual costs.

Final Points

“Delegation. For a fiduciary without substantial investment expertise, it is both a good plan and protective against liability, to

select an investment advisor”Source: National Guardianship Association

“The prudent investor rule is a test of conduct and not of resulting performance.”

(760 ILCS 5/5) (from Ch. 17, para. 1675)

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Final Points

“The Prudent Investor Rule” (the Rule) is intended to give fiduciaries guidance on how to invest assets

under their control and management.

Fiduciaries…may use the Rule as a defense if challenged by the ward, families, courts and others.

Wards…may use the Rule to protect from guardian mismanagement.


Important Information

This Presentation is intended for informational purposes only and is subject to change without notice.

For further information about the products/programs available and their suitability for your portfolio, please contact your Oppenheimer Financial Advisor. Any discussion of securities, should not be construed as a recommendation or an offer or solicitation to buy or sell interest in any securities. Securities products offered or sold by Oppenheimer will not be endorsed or guaranteed by Oppenheimer and will be subject to investment risks, including the possible loss of principal invested.

Oppenheimer & Co. Inc. does not provide legal or tax advice.

© 2018 Oppenheimer & Co. Inc. Transacts Business on All Principal Exchanges and Member SIPC. All rights reserved. No part of this presentation may be reproduced in any manner without written permission of Oppenheimer. # 2154644.1

LynchOppenheimer - FINAL 18-PITCH-14 Lynch Presentation

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