Question

What a trust department delegates its investment responsibility to a third party, the trust department should:

a. have a policy outlining the decision-making process.
b. set criteria for selecting and monitoring third parties.
c. monitor the performance of the third party.
d. All of the above.

Answer 1

The trust department should implement all of the above measures: establishing a policy for delegation, setting criteria for third-party selection and monitoring, and actively monitoring third-party performance to effectively manage and oversee third-party investment responsibilities.

Step-by-step explanation:

When a trust department delegates its investment responsibility to a third party, it is essential that it addresses several key governance and oversight practices to safeguard the interests of its clients. To ensure effective oversight and management of third-party engagements, the trust department should adhere to the following practices:

1. Have a comprehensive policy outlining the decision-making process for delegation, which includes the scope of delegated responsibilities and the circumstances under which delegation is appropriate.
2. Set rigorous criteria for selecting and monitoring third parties to ensure that they are capable and competent in managing the assets entrusted to them.
3. Monitor the performance and compliance of the third party on a regular basis to ascertain that they are fulfilling their investment management duties as expected and to assess the need for any intervention or change.

Collectively, these steps form a disciplined approach to third-party investment management, safeguarding the interests of the trust's beneficiaries and maintaining alignment with the legal and ethical responsibilities of the trust department.