There seems to be some confusion in Missouri over the permissible contractual relationships among the preneed seller, the preneed trustee and the independent investment advisor. Prior to the collapse of NPS, and the subsequent amendment of Missouri’s preneed law, Chapter 436 allowed the preneed seller to incorporate provisions in its preneed trust agreement to instruct the trustee to hire the independent investment advisor designated by the seller. As discussed in a prior post [Investment Advisors: How Independent?], this provision, and the authority to establish a third party seller, was sought by the Missouri Funeral Directors Association for a new master preneed program. With Senate Bill No. 1, the Missouri Legislature sought to close the 436.031 loop hole that NPS exploited. With Section 436.445, the Legislature prohibited the preneed trustee from delegating investment decisions to any agent of a seller other than an authorized external investment advisor in compliance with Section 436.440. With Section 436.440.2, the Legislature set out the duty of care owed by the trustee when delegating duties and powers. With Section 436.440.5, the Legislature overrode Uniform Trust Code provisions which would allow the trust agreement to relieve the trustee from liabilities arising from delegated duties. The last paragraph of Section 436.440 grandfathered trusts in existence on August 28, 2009 that were using an independent financial advisor.
The confusion stems from whether the grandfather clause of Section 436.440 exempts pre-SB1 preneed trusts from the duties set out in the prior paragraphs of that section. When the State Board staff sought the Board’s approval of proposed regulation 20 CSR 2120-3.525, the Missouri Funeral Directors and Embalmers Association objected on the basis that the regulation exceeded the Board’s statutory authorities. The Association’s executive director asserted that the regulation would override the grandfather clause of Section 436.440.6. What the Association seems to be saying is that the grandfather clause allows a pre-SB1 trust to continue to treat the seller as the sole beneficiary, and thereby limit the duties owed by the trustee and the independent investment advisor to funeral homes and preneed contract purchasers. That is a very extreme reading of a very vague paragraph.
Contrary to what the Association’s executive director has asserted, the proposed regulation would not override the grandfather clause. The regulation would allow the master trust program to continue to use its investment advisor so long as the advisor remains qualified and the agency agreement between the trustee and the fund manager complies with the regulation. The grandfather clause cannot be read as giving the master trust program carte blanch to define the duties owed to provider funeral homes and preneed consumers.