One strength of the state association master trust is that it can provide the ‘critical mass’ required for economies of scale to reduce trust management costs. As the state master trust grows in size, the association can better negotiate asset management arrangements. However, the reality has been very different for these programs. The reorganization of the each of the Wisconsin Master Trust and the California Master Trust cited the need to reign in high investment management costs.
Investment management fees can include mutual fund expense ratios, ETF expense ratios, advisor fees, brokerage fees, transaction fees, load fees and 12b-1 fees. (To learn more about investment expenses follow this hyperlink to a Bloomberg Business article: An Investor’s Guide to Fees and Expenses) When management fees are not controlled, expenses can take a heavy toll on the fund return. (Follow this hyperlink to a Forbes magazine article: The Heavy Toll Of Investment Fees).
In a prior post (Accountability and the Master Trust ), we explained how the state master can provide the smaller funeral home the economies of scale necessary to reducing costs that would otherwise be prohibitive. But as we noted in that post, transparency and accountability to funeral home members and consumers is lacking on the part of some state association programs.
Master trust programs should provide the following information:
- The name and address of the trustee.
- The master trust’s written investment policy.
- The fees paid to the trustee, fund managers and account administrators.
- The taxes paid by the trust.
- A summary report of the trust’s performance and asset description.
- A disclosure of related party transactions (loans, discounts, service agreements, etc.)
- Any sponsorship fee paid the association.
In another prior post (Un-parking those death care trusts: diversification) we discussed how poor investment performance by preneed trusts can be blamed in part on the lack of active fund management. When the program’s investment policy consists of offering a few mutual fund options to the funeral director to choose from, one has to question whether the program is meeting its fiduciary duties to funeral directors and consumers.