Authorizes trust companies to make affiliated investments and to receive fiduciary compensation for making such investments.
TITLE OF BILL: An act to amend the banking law, in relation to authorizing trust companies to make affiliated investments
PURPOSE: This bill authorizes banks, trust companies, savings institutions and credit unions to deal with an affiliate or an affiliated investment, just as they may currently with mutual funds and common trust funds, by investing the funds held in trusts that they administer in such affiliates or affiliated investments.
SUMMARY OF PROVISIONS:
Section One. Adds a new section 100-e to the Banking Law. New section 100-e has four subdivisions.
Subdivision 1 contains five definitions, of affiliate, affiliated investment, fee or commission, investment, and trust company.
Subdivision 2 authorizes trust companies to purchase, sell, hold, or otherwise deal with an affiliate or affiliated investments, including hedge funds, private equity vehicles and other nontraditional investments already authorized under the Prudent Investor Act for trustees to invest in. It also makes clear that trust companies engaged in such investments, so long as they satisfy the conditions in subdivision 3, may receive their full trustee commissions.
Subdivision 3 requires that any trust company seeking a trustee commission disclose to each principal in an agency relationship and all current recipients of account statements all fees and commissions either being paid by the account or being received by an affiliate. The disclosure must be given at least annually unless there has been no increase in the rate of commission or fee since the last disclosure. Disclosure could be provided directly or through providing a copy of a prospectus or other State or federally approved securities disclosure.
Subdivision 4 makes clear that trust companies in compliance with subdivision 3 have full authority, including proxy voting rights, to administer an affiliated investment.
Section Two. Provides that the bill will be effective upon enactment.
JUSTIFICATION: This legislation would authorize New York corporate trustees to invest the trust funds of trusts they manage in investments offered by their corporate affiliates or in investments in which they have an interest. It will provide additional flexibility in investing to corporate trustees and to grantors establishing trusts in New York.
Currently, New York corporate trustees are authorized to invest the funds of trusts they manage in registered investment companies, mutual funds and common trust, funds with which they are affiliated. Under the Prudent Investor Act (EPTL section 11-2.3), they can invest in a broad
range of other types of investment vehicles, including such alternative investments as private equity funds, hedge funds, limited liability companies, limited partnerships, venture capital investments and other sophisticated investments. In the absence of language in the trust instrument or a court order, however, New York corporate trustees may not invest in these alternative investment vehicles if they are affiliated with them. This legislation would broaden the investment authority of corporate trustees to permit them to invest trust funds under management in alternative investment vehicles with which they are affiliated and which they may have a much higher degree of knowledge. Alternative investments offered by its own affiliates will almost always be more transparent to the corporate trustee than will be those offered by third parties.
Furthermore, corporate trustees must provide a range of additional trust services in addition to the investment management decision needed to select a particular investment. Such services include periodic reporting, ensuring that beneficiary needs are identified and met, filing of tax returns, oversight of all investments and record-keeping. The costs of these services are over and above the cost incurred by investors in an alternative investment vehicle and should be compensated. This legislation will allow trustees to accept a trustee commission as well as having their affiliates accept the normal compensation provided for the type of affiliated investment offered. Competition among corporate trustees for grantor trust business will continue to ensure that this compensation remains reasonable.
In providing trustees and grantors needed flexibility while protecting the interests of and financial returns for beneficiaries, this legislation will begin the process of updating and modernizing those laws in an effort to keep busts and the employees who manage and administer them in New York.
LEGISLATIVE HISTORY: 2011-12 S. 5472 - Banks Committee.
FISCAL IMPLICATIONS: None.
EFFECTIVE DATE: Immediate.
STATE OF NEW YORK ________________________________________________________________________ 2596 2013-2014 Regular Sessions IN SENATE January 22, 2013 ___________Introduced by Sen. GRIFFO -- read twice and ordered printed, and when printed to be committed to the Committee on Banks AN ACT to amend the banking law, in relation to authorizing trust compa- nies to make affiliated investments THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. The banking law is amended by adding a new section 100-e to read as follows: S 100-E. AFFILIATED INVESTMENTS; TRANSACTIONS WITH AFFILIATES. 1. DEFINITIONS. AS USED IN THIS SECTION: (A) "AFFILIATE" MEANS ANY CORPORATION OR OTHER ENTITY THAT DIRECTLY OR INDIRECTLY THROUGH ONE OR MORE INTERMEDIARIES CONTROLS, IS CONTROLLED BY OR IS UNDER COMMON CONTROL WITH THE FIDUCIARY. (B) "AFFILIATED INVESTMENT" MEANS AN INVESTMENT FOR WHICH THE FIDUCI- ARY OR AN AFFILIATE OF THE FIDUCIARY ACTS AS ADVISER, ADMINISTRATOR, DISTRIBUTOR, PLACEMENT AGENT, UNDERWRITER, BROKER OR IN ANY OTHER CAPAC- ITY FOR WHICH IT RECEIVES OR HAS RECEIVED A FEE OR COMMISSION FROM SUCH INVESTMENT OR AN INVESTMENT ACQUIRED OR DISPOSED OF IN A TRANSACTION FOR WHICH THE FIDUCIARY OR AN AFFILIATE OF THE FIDUCIARY RECEIVES OR HAS RECEIVED A FEE OR COMMISSION. (C) "FEE OR COMMISSION" MEANS COMPENSATION PAID TO A FIDUCIARY OR AN AFFILIATE THEREOF ON ACCOUNT OF ITS SERVICES TO OR ON BEHALF OF AN INVESTMENT. (D) "INVESTMENT" MEANS ANY SECURITY AS DEFINED IN SECTION TWO OF THE FEDERAL SECURITIES ACT OF 1933, ANY CONTRACT OF SALE OF A COMMODITY FOR FUTURE DELIVERY WITHIN THE MEANING OF SECTION TWO OF THE FEDERAL COMMOD- ITY EXCHANGE ACT, OR ANY OTHER ASSET PERMITTED FOR FIDUCIARY ACCOUNTS PURSUANT TO SUBPARAGRAPH FOUR OF PARAGRAPH (B) OF SECTION 11-2.3 OF THE ESTATES, POWERS AND TRUSTS LAW OR BY THE TERMS OF THE GOVERNING INSTRU- MENT, INCLUDING, BUT NOT LIMITED TO, SHARES OR INTERESTS IN A PRIVATE INVESTMENT FUND (INCLUDING A PRIVATE INVESTMENT FUND ORGANIZED AS AEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD07268-01-3 S. 2596 2
LIMITED PARTNERSHIP, LIMITED LIABILITY COMPANY, A STATUTORY OR COMMON LAW BUSINESS TRUST, OR A REAL ESTATE INVESTMENT TRUST), JOINT VENTURE OR OTHER GENERAL OR LIMITED PARTNERSHIP, OR AN OPEN-END OR CLOSED-END MANAGEMENT TYPE INVESTMENT COMPANY OR INVESTMENT TRUST REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940. (E) "TRUST COMPANY" MEANS ANY TRUST COMPANY, ANY BANK, INCLUDING ANY PRIVATE BANK, SAVINGS BANK, SAVINGS AND LOAN ASSOCIATION, AND CREDIT UNION, DULY AUTHORIZED TO EXERCISE FIDUCIARY POWERS, AND ANY NATIONAL BANK, FEDERAL SAVINGS BANK, OR FEDERAL SAVINGS AND LOAN ASSOCIATION HAVING A PRINCIPAL, BRANCH OR TRUST OFFICE IN THIS STATE AND DULY AUTHORIZED TO EXERCISE FIDUCIARY POWERS. 2. NOTWITHSTANDING ANY OTHER PROVISION OF LAW, A TRUST COMPANY MAY PURCHASE, SELL, HOLD OR OTHERWISE DEAL WITH AN AFFILIATE OR AN INTEREST IN AN AFFILIATED INVESTMENT AND, UPON SATISFACTION OF THE CONDITIONS STATED IN SUBDIVISION THREE OF THIS SECTION, SUCH TRUST COMPANY MAY RECEIVE FIDUCIARY COMPENSATION FROM SUCH ACCOUNT AT THE SAME RATE AS THE TRUST COMPANY WOULD OTHERWISE BE ENTITLED TO BE COMPENSATED. 3. A TRUST COMPANY SEEKING COMPENSATION PURSUANT TO SUBDIVISION TWO OF THIS SECTION SHALL DISCLOSE TO EACH PRINCIPAL IN AN AGENCY RELATIONSHIP, AND TO ALL CURRENT RECIPIENTS OF ACCOUNT STATEMENTS OF ANY OTHER FIDUCI- ARY ACCOUNT, ALL FEES OR COMMISSIONS PAID OR TO BE PAID BY THE ACCOUNT, OR RECEIVED OR TO BE RECEIVED BY AN AFFILIATE ARISING FROM SUCH AFFIL- IATED INVESTMENT OR SUCH OTHER DEALING WITH AN AFFILIATE. THE DISCLOSURE REQUIRED UNDER THIS SUBSECTION MAY BE GIVEN EITHER IN A COPY OF THE PROSPECTUS OR ANY OTHER DISCLOSURE DOCUMENT PREPARED FOR THE AFFILIATED INVESTMENT UNDER FEDERAL OR STATE SECURITIES LAWS OR IN A WRITTEN SUMMA- RY THAT INCLUDES ALL FEES OR COMMISSIONS RECEIVED OR TO BE RECEIVED BY THE TRUST COMPANY OR ANY AFFILIATE OF THE TRUST COMPANY AND AN EXPLANA- TION OF THE MANNER IN WHICH SUCH FEES OR COMMISSIONS ARE CALCULATED, EITHER AS A PERCENTAGE OF THE ASSETS INVESTED OR BY SOME OTHER METHOD. SUCH DISCLOSURE SHALL BE MADE AT LEAST ANNUALLY UNLESS THERE HAS BEEN NO INCREASE IN THE RATE AT WHICH SUCH FEES OR COMMISSIONS ARE CALCULATED SINCE THE MOST RECENT DISCLOSURE. NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SUBDIVISION, NO SUCH DISCLOSURE IS REQUIRED IF THE GOVERNING INSTRUMENT OR A COURT ORDER EXPRESSLY AUTHORIZES THE TRUST COMPANY TO INVEST THE FIDUCIARY ACCOUNT IN AFFILIATED INVESTMENTS OR OTHERWISE DEAL WITH AN AFFILIATE OR AN INTEREST IN AN AFFILIATED INVEST- MENT. 4. A TRUST COMPANY THAT HAS COMPLIED WITH SUBDIVISION THREE OF THIS SECTION, WHETHER BY MAKING THE APPLICABLE DISCLOSURE OR BY RELYING ON THE TERMS OF A GOVERNING INSTRUMENT OR COURT ORDER, SHALL HAVE FULL AUTHORITY TO ADMINISTER AN AFFILIATED INVESTMENT, INCLUDING THE AUTHORI- TY TO VOTE PROXIES THEREON, WITHOUT REGARD TO THE AFFILIATION BETWEEN THE TRUST COMPANY AND THE INVESTMENT. S 2. This act shall take effect immediately.