Trustee Fails To Diversify Investments Causing Multi-Million Dollar Losses

Case Overview

This case involves a bank that served as a trustee on behalf of a well-known university. The defending bank was accused of breaching its fiduciary duty to the university by allegedly failing to diversify the trust assets. The holdings of the trust were invested almost exclusively in 5 stocks. The fund was diversified and sold some of the stock, but the trust asset holders still lost about $2.5 million. An expert trust officer with experience in diversifying asset portfolios was sought to opine on whether the bank violated its fiduciary duty.

Questions to the Banking expert and their responses

Please describe your experience as a trust officer or as a bank trustee.

During my almost 40 years of handling trust accounts or supervising those who were handling the accounts, diversification was a high priority with any account.

Do you have specific experience diversifying asset portfolios of a trust? Can you speak to the bank's fiduciary duty to do this?

Cases involving a trustee not diversifying their own stock tend to be very embarrassing for the trustee. For accounts with a single asset, you should be able to show communication with the beneficiaries about your plan to diversify and the timeline to do so. Even that may not suffice with remaindermen of a trust.

About the expert

This expert spent his entire career as a trust officer. His experience has been in different types of trusts. In one of his positions, he was hired to manage and grow a $130 million trust shop. He restructured operations and grew the department to about $180 million. In another position, he headed a $25 million department, managing it for almost 15 years and grew assets to $140 million. He increased revenues almost 500%. He was promoted to Group Vice President and later to Senior Vice President. In one position, he handled assets of over $1 billion. He retired as of September of this year.