Assets Under-Management, or AUM, is a fee charged by an investment advisor or Trustee based on a percent of the funds held in the trust account. Most programs charge this annually on the anniversary date of funding. When advisors or trustees do this, it typically benefits them, not the client. In other words, most programs charge the fee upfront when there is the most money in account instead of periodically through the year as funds are spent. Depending on the client’s rate of the spending, this can result in higher fees overtime for the client.
At CPT Institute, we do not feel that is equitable to our clients. True Link Financial Advisors, calculates AUM based on an average daily balance and assesses the fee quarterly. In other words, our clients pay the AUM as-they-go based on the assets they have instead of being billed when they have the most money in their account.
CONFLICTS OF INTEREST
If a Trustee charges based on a percentage of the Assets Under-Management (AUM), they have a financial incentive to not allow you to spend money from your trust account. Especially for big purchases. That’s why at CPT Institute we choose to charge a flat rate fee instead of an increased percentage of AUM.
Many Trustees hide behind “Principal Reduction Rules” which limits spending more than a given amount or percentage from the Trust. CPT Institute does not abide by this practice.
COMMON UNDISCLOSED FEES
Generally, trusts require language to modify fees based on the client’s situation. Many providers use this as a justification to not disclose all the fees coming from the Trustee and their Custody Agent (i.e. bank). At CPT Institute, fees are 100% transparent and only exclude 3rd-party fees.
Here’s some common hidden fees to watch out for:
- Case management/consultation fees billed hourly, or by the individual call, from the client.
- Varying tax preparation fees year-to-year
- Retention at time of death, many local programs still retain 100% of funds at time of death or charge a “Termination fee” to close the account.
- Additional fees on structured settlements or annuities assigned to the trust. This is common for Trustees who only charge a percentage of Assets Under Management.
- Minimum thresholds: once the trustee has allowed the client to spend down a significant amount of the trust corpus, the Trustee may try to transfer you to another program because they can no longer make enough profit on a percentage alone.