In the Matter of Derek W. Bryant, an Infant.
Donna E. Allen, guardian pro se.
Eugene E. Peckham, S.
This is a petition by Donna E. Allen, as guardian of her son, Derek W. Bryant, to invest $25,000 of the ward's funds pursuant to an investment advisory agreement, which is now permitted by SCPA 1708 (2) (c), subject to the Court's approval. (L 2000, ch 43, § 1.) The proposed agreement is with Manufacturers & Traders Trust Co. (hereinafter M& T Bank or M& T). Derek was born on September 3, 1986 and thus will be 15 in a few months.
The agreement is a printed form supplied by M& T and basically provides that the guardian delegates to M& T the investment responsibility for the ward's assets to be managed in accordance with the Prudent Investor Rule of EPTL 11-2.3. The guardian selects from essentially three asset allocation models: aggressive, moderate and conservative. There are also tax sensitive versions of the same three models. Based on the model selected, M& T picks a diversified portfolio of investments using various mutual funds. M& T as investment advisor will periodically reallocate the percentage of funds in the portfolio and also change the mutual funds in the portfolio. The mutual fund selections include the Vision Group of Funds Inc. for which M& T is the advisor, as well as third-party funds such as Janus and Vanguard.
M& T has submitted information indicating that this is a state-wide investment advisory program for guardians. As of April 16, 2001, there were 121 accounts in 10 counties upstate with 106 accounts approved and open and 15 petitions pending for court approval. Thus M& T intends to secure multiple accounts and invest them as a unit in the types of portfolios selected by the guardians of the various accounts. This permits combining a number of small guardianship accounts together for investment purposes thus achieving economies of scale for the program.
Ordinarily, it is not the province of the court to prejudge the decisions of a fiduciary regarding investments. However, SCPA 1708 (2) (c)
provides that the guardian must be authorized by the court to enter into the investment advisory agreement and the arrangement must be " acceptable to the court." Furthermore the jurisdiction of the court over the property of infants is " unlimited ... over any and every legal and equitable question which may ever arise in connection with ... the relations of guardians and wards." (Matter of Morris, 134 Misc. 374, 382 [Sur Ct, Kings County 1929]; SCPA 1701.) As a result, it is clear that the Legislature has committed to the Surrogate Court the responsibility and jurisdiction to review the guardian's proposed investment delegation to be sure it is reasonable and in the best interests of the ward.
Originally the agreement proposed that M& T receive a fee of 1.25% of the first $100,000 of assets and 1.0% on assets over $100,000 with a minimum fee of $250 per quarter. In addition, the agreement requires the guardian to agree to the fact that M& T and/or its affiliates will receive additional fees for acting as advisor to the Vision Mutual Funds ranging from .79% to 1.14%. For handling the third-party funds, M& T will receive an administrative service fee of .25%. After a conference with the Court where it was pointed out that because of the minimum fee the total compensation would be 4% of the $25,000 invested, M& T agreed to reduce the minimum to $75 per quarter. As a result, M& T's total compensation on funds invested in the Vision Mutual Funds would range from 2.04% to 2.39% and on third-party funds it would be 1.50%.
The purpose for permitting guardians to enter into investment advisory agreements is set forth in the legislative memorandum as follows:
" [T]o authorize the guardian of infants' funds to invest those funds in accordance with the Prudent Investor Act (EPTL 11-2.3) without subjecting the infant's funds to the cost of a bond.
" The return to be gotten from depositing the funds in a savings account or government debt or security may be significantly lower than that achievable by investing the funds in stocks, corporate bonds, mutual funds or other investment vehicles available to investors generally. Particularly where the funds will be under the guardian's control for a number of years, the infant will not be well served by simply depositing the funds in a bank account, upon which the interest earned may not even protect the ...