Trust Assets:

Investment of Trust Assets in Bank Proprietary Mutual Funds

GGD-95-21: Published: Mar 16, 1995. Publicly Released: Mar 16, 1995.

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Pursuant to a congressional request, GAO provided information on the extent to which banks have invested trust assets into proprietary mutual funds, focusing on: (1) the disclosure and consent requirements that apply when trust assets are invested into these funds; (2) whether double fees on invested trust assets are legal; and (3) the regulatory controls that prevent banks from acting in their own self-interest.

GAO found that: (1) most banks have not invested trust assets in proprietary mutual funds; (2) the majority of funds invested in bank proprietary mutual funds are from non-trust assets; (3) by the end of 1992, about $24 billion in trust assets had been used to start up proprietary mutual funds which represented about 15 percent of the total assets in these funds; (4) the bank industry believed the trust asset investments were understated because the estimates did not take into account conversions and new trust investments; (5) in 1993, about $45 billion in employee benefit and personal trust assets were invested in short-term money market mutual funds; (6) industry and regulatory officials believe that trust investments are becoming more attractive to investors for tax reasons; (7) investment disclosure requirements vary by state and most states that allow proprietary mutual fund investments do not require beneficiary consent; (8) although 8 states are in compliance with the double fee prohibitions on employee accounts, 27 states allow double fees to be charged; (9) most banks lack incentives to charge double fees because of competition and the possibility of federal penalties and beneficiary lawsuits; (10) when investing trust assets, banks are prohibited from acting in their own self-interest, must justify their investments, and are subject to federal review; and (11) the effectiveness of trust examinations could not be determined, since the number of examinations are limited and use of proprietary mutual funds in trusts is new.

Jul 6, 2020

Apr 30, 2020

  • finance icon, source: Comstock

    Priority Open Recommendations:

    Department of the Treasury
    GAO-20-549PR: Published: Apr 23, 2020. Publicly Released: Apr 30, 2020.

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