senate Bill S2596

Authorizing trust companies to make affiliated investments and to receive fiduciary compensation for making such investments

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Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
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actions

  • 22 / Jan / 2013
    • REFERRED TO BANKS
  • 08 / Jan / 2014
    • REFERRED TO BANKS
  • 03 / Feb / 2014
    • RECOMMIT, ENACTING CLAUSE STRICKEN

Summary

Authorizes trust companies to make affiliated investments and to receive fiduciary compensation for making such investments.

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Bill Details

Versions:
S2596
Legislative Cycle:
2013-2014
Current Committee:
Senate Banks
Law Section:
Banking Law
Laws Affected:
Add ยง100-e, Bank L
Versions Introduced in 2011-2012 Legislative Cycle:
S5472

Sponsor Memo

BILL NUMBER:S2596

TITLE OF BILL: An act to amend the banking law, in relation to author-
izing trust companies to make affiliated investments

PURPOSE: This bill authorizes banks, trust companies, savings insti-
tutions and credit unions to deal with an affiliate or an affiliated
investment, just as they may currently with mutual funds and common
trust funds, by investing the funds held in trusts that they administer
in such affiliates or affiliated investments.

SUMMARY OF PROVISIONS:

Section One. Adds a new section 100-e to the Banking Law. New section
100-e has four subdivisions.

Subdivision 1 contains five definitions, of affiliate, affiliated
investment, fee or commission, investment, and trust company.

Subdivision 2 authorizes trust companies to purchase, sell, hold, or
otherwise deal with an affiliate or affiliated investments, including
hedge funds, private equity vehicles and other nontraditional invest-
ments already authorized under the Prudent Investor Act for trustees to
invest in. It also makes clear that trust companies engaged in such
investments, so long as they satisfy the conditions in subdivision 3,
may receive their full trustee commissions.

Subdivision 3 requires that any trust company seeking a trustee commis-
sion disclose to each principal in an agency relationship and all
current recipients of account statements all fees and commissions either
being paid by the account or being received by an affiliate. The
disclosure must be given at least annually unless there has been no
increase in the rate of commission or fee since the last disclosure.
Disclosure could be provided directly or through providing a copy of a
prospectus or other State or federally approved securities disclosure.

Subdivision 4 makes clear that trust companies in compliance with subdi-
vision 3 have full authority, including proxy voting rights, to adminis-
ter an affiliated investment.

Section Two. Provides that the bill will be effective upon enactment.

JUSTIFICATION: This legislation would authorize New York corporate
trustees to invest the trust funds of trusts they manage in investments
offered by their corporate affiliates or in investments in which they
have an interest. It will provide additional flexibility in investing to
corporate trustees and to grantors establishing trusts in New York.

Currently, New York corporate trustees are authorized to invest the
funds of trusts they manage in registered investment companies, mutual
funds and common trust, funds with which they are affiliated. Under the
Prudent Investor Act (EPTL section 11-2.3), they can invest in a broad

range of other types of investment vehicles, including such alternative
investments as private equity funds, hedge funds, limited liability
companies, limited partnerships, venture capital investments and other
sophisticated investments. In the absence of language in the trust
instrument or a court order, however, New York corporate trustees may
not invest in these alternative investment vehicles if they are affil-
iated with them. This legislation would broaden the investment authority
of corporate trustees to permit them to invest trust funds under manage-
ment in alternative investment vehicles with which they are affiliated
and which they may have a much higher degree of knowledge. Alternative
investments offered by its own affiliates will almost always be more
transparent to the corporate trustee than will be those offered by third
parties.

Furthermore, corporate trustees must provide a range of additional trust
services in addition to the investment management decision needed to
select a particular investment. Such services include periodic report-
ing, ensuring that beneficiary needs are identified and met, filing of
tax returns, oversight of all investments and record-keeping. The costs
of these services are over and above the cost incurred by investors in
an alternative investment vehicle and should be compensated. This legis-
lation will allow trustees to accept a trustee commission as well as
having their affiliates accept the normal compensation provided for the
type of affiliated investment offered. Competition among corporate trus-
tees for grantor trust business will continue to ensure that this
compensation remains reasonable.

In providing trustees and grantors needed flexibility while protecting
the interests of and financial returns for beneficiaries, this legis-
lation will begin the process of updating and modernizing those laws in
an effort to keep busts and the employees who manage and administer them
in New York.

LEGISLATIVE HISTORY: 2011-12 S. 5472 - Banks Committee.

FISCAL IMPLICATIONS: None.

EFFECTIVE DATE: Immediate.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  2596

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                            January 22, 2013
                               ___________

Introduced  by  Sen.  GRIFFO -- read twice and ordered printed, and when
  printed to be committed to the Committee on Banks

AN ACT to amend the banking law, in relation to authorizing trust compa-
  nies to make affiliated investments

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. The banking law is amended by adding a new section 100-e to
read as follows:
  S  100-E.  AFFILIATED  INVESTMENTS; TRANSACTIONS WITH AFFILIATES.   1.
DEFINITIONS. AS USED IN THIS SECTION:
  (A) "AFFILIATE" MEANS ANY CORPORATION OR OTHER ENTITY THAT DIRECTLY OR
INDIRECTLY THROUGH ONE OR MORE INTERMEDIARIES CONTROLS, IS CONTROLLED BY
OR IS UNDER COMMON CONTROL WITH THE FIDUCIARY.
  (B) "AFFILIATED INVESTMENT" MEANS AN INVESTMENT FOR WHICH THE  FIDUCI-
ARY  OR  AN  AFFILIATE  OF THE FIDUCIARY ACTS AS ADVISER, ADMINISTRATOR,
DISTRIBUTOR, PLACEMENT AGENT, UNDERWRITER, BROKER OR IN ANY OTHER CAPAC-
ITY FOR WHICH IT RECEIVES OR HAS RECEIVED A FEE OR COMMISSION FROM  SUCH
INVESTMENT OR AN INVESTMENT ACQUIRED OR DISPOSED OF IN A TRANSACTION FOR
WHICH  THE  FIDUCIARY  OR  AN AFFILIATE OF THE FIDUCIARY RECEIVES OR HAS
RECEIVED A FEE OR COMMISSION.
  (C) "FEE OR COMMISSION" MEANS COMPENSATION PAID TO A FIDUCIARY  OR  AN
AFFILIATE  THEREOF  ON  ACCOUNT  OF  ITS  SERVICES TO OR ON BEHALF OF AN
INVESTMENT.
  (D) "INVESTMENT" MEANS ANY SECURITY AS DEFINED IN SECTION TWO  OF  THE
FEDERAL  SECURITIES ACT OF 1933, ANY CONTRACT OF SALE OF A COMMODITY FOR
FUTURE DELIVERY WITHIN THE MEANING OF SECTION TWO OF THE FEDERAL COMMOD-
ITY EXCHANGE ACT, OR ANY OTHER ASSET PERMITTED  FOR  FIDUCIARY  ACCOUNTS
PURSUANT  TO SUBPARAGRAPH FOUR OF PARAGRAPH (B) OF SECTION 11-2.3 OF THE
ESTATES, POWERS AND TRUSTS LAW OR BY THE TERMS OF THE GOVERNING  INSTRU-
MENT,  INCLUDING,  BUT  NOT LIMITED TO, SHARES OR INTERESTS IN A PRIVATE
INVESTMENT FUND (INCLUDING A PRIVATE  INVESTMENT  FUND  ORGANIZED  AS  A

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD07268-01-3

S. 2596                             2

LIMITED  PARTNERSHIP,  LIMITED  LIABILITY COMPANY, A STATUTORY OR COMMON
LAW BUSINESS TRUST, OR A REAL ESTATE INVESTMENT TRUST), JOINT VENTURE OR
OTHER GENERAL OR LIMITED  PARTNERSHIP,  OR  AN  OPEN-END  OR  CLOSED-END
MANAGEMENT  TYPE INVESTMENT COMPANY OR INVESTMENT TRUST REGISTERED UNDER
THE INVESTMENT COMPANY ACT OF 1940.
  (E) "TRUST COMPANY" MEANS ANY TRUST COMPANY, ANY BANK,  INCLUDING  ANY
PRIVATE  BANK,  SAVINGS  BANK,  SAVINGS AND LOAN ASSOCIATION, AND CREDIT
UNION, DULY AUTHORIZED TO EXERCISE FIDUCIARY POWERS,  AND  ANY  NATIONAL
BANK,  FEDERAL  SAVINGS  BANK,  OR  FEDERAL SAVINGS AND LOAN ASSOCIATION
HAVING A PRINCIPAL, BRANCH OR  TRUST  OFFICE  IN  THIS  STATE  AND  DULY
AUTHORIZED TO EXERCISE FIDUCIARY POWERS.
  2.  NOTWITHSTANDING  ANY  OTHER  PROVISION OF LAW, A TRUST COMPANY MAY
PURCHASE, SELL, HOLD OR OTHERWISE DEAL WITH AN AFFILIATE OR AN  INTEREST
IN  AN  AFFILIATED  INVESTMENT  AND, UPON SATISFACTION OF THE CONDITIONS
STATED IN SUBDIVISION THREE OF THIS  SECTION,  SUCH  TRUST  COMPANY  MAY
RECEIVE FIDUCIARY COMPENSATION FROM SUCH ACCOUNT AT THE SAME RATE AS THE
TRUST COMPANY WOULD OTHERWISE BE ENTITLED TO BE COMPENSATED.
  3. A TRUST COMPANY SEEKING COMPENSATION PURSUANT TO SUBDIVISION TWO OF
THIS SECTION SHALL DISCLOSE TO EACH PRINCIPAL IN AN AGENCY RELATIONSHIP,
AND TO ALL CURRENT RECIPIENTS OF ACCOUNT STATEMENTS OF ANY OTHER FIDUCI-
ARY  ACCOUNT, ALL FEES OR COMMISSIONS PAID OR TO BE PAID BY THE ACCOUNT,
OR RECEIVED OR TO BE RECEIVED BY AN AFFILIATE ARISING FROM  SUCH  AFFIL-
IATED INVESTMENT OR SUCH OTHER DEALING WITH AN AFFILIATE. THE DISCLOSURE
REQUIRED  UNDER  THIS  SUBSECTION  MAY  BE GIVEN EITHER IN A COPY OF THE
PROSPECTUS OR ANY OTHER DISCLOSURE DOCUMENT PREPARED FOR THE  AFFILIATED
INVESTMENT UNDER FEDERAL OR STATE SECURITIES LAWS OR IN A WRITTEN SUMMA-
RY  THAT  INCLUDES ALL FEES OR COMMISSIONS RECEIVED OR TO BE RECEIVED BY
THE TRUST COMPANY OR ANY AFFILIATE OF THE TRUST COMPANY AND AN  EXPLANA-
TION  OF  THE  MANNER  IN WHICH SUCH FEES OR COMMISSIONS ARE CALCULATED,
EITHER AS A PERCENTAGE OF THE ASSETS INVESTED OR BY SOME  OTHER  METHOD.
SUCH DISCLOSURE SHALL BE MADE AT LEAST ANNUALLY UNLESS THERE HAS BEEN NO
INCREASE  IN  THE  RATE AT WHICH SUCH FEES OR COMMISSIONS ARE CALCULATED
SINCE  THE  MOST  RECENT  DISCLOSURE.  NOTWITHSTANDING   THE   FOREGOING
PROVISIONS  OF  THIS  SUBDIVISION, NO SUCH DISCLOSURE IS REQUIRED IF THE
GOVERNING INSTRUMENT OR A COURT ORDER  EXPRESSLY  AUTHORIZES  THE  TRUST
COMPANY  TO  INVEST  THE  FIDUCIARY ACCOUNT IN AFFILIATED INVESTMENTS OR
OTHERWISE DEAL WITH AN AFFILIATE OR AN INTEREST IN AN AFFILIATED INVEST-
MENT.
  4. A TRUST COMPANY THAT HAS COMPLIED WITH SUBDIVISION  THREE  OF  THIS
SECTION,  WHETHER  BY  MAKING THE APPLICABLE DISCLOSURE OR BY RELYING ON
THE TERMS OF A GOVERNING INSTRUMENT OR  COURT  ORDER,  SHALL  HAVE  FULL
AUTHORITY TO ADMINISTER AN AFFILIATED INVESTMENT, INCLUDING THE AUTHORI-
TY  TO  VOTE  PROXIES THEREON, WITHOUT REGARD TO THE AFFILIATION BETWEEN
THE TRUST COMPANY AND THE INVESTMENT.
  S 2. This act shall take effect immediately.

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