Burned Once… Using KRIs to Avoid Litigation and Vice Versa

Burned Once…Using KRIs to Avoid Litigation

and Vice VersaJoan R. Dindoffer

VP and Chief Compliance OfficerPrivate Fiduciary Services

Comerica BankDetroit, Michigan(313)222-9386

jrdindoffer@comerica.comMarch 31, 2010

Note: The views expressed are those of the presenter, and not Comerica.

Burned once, shame on you.Burned twice, shame on me.

• Learn from mistakes.– Litigation– Complaints– Audits– Regulatory Exams– Media Reports– Reported Cases

Pay attention to potential risks at each step in the life of an account.

• Account Acceptance– Assets– Expectations– Circumstances of appointment

• Account Reviews– Initial Post Acceptance & Annual– Administrative & Reg 9

• Discretionary Distributions

• Complaints

• Litigation

No surprises!

• All the signs were there:

– Account Reviews– Discretionary Action Minutes– Complaint Logs

Caution Signs

• Concentrations• Own bank stock• Other conflicts• Alternative investments• Closely held assets• Real estate• Performance• Depletion of principal

It’s not always what it seems.Also look for these red flags:

– Family dynamics– Squabbles over tangible personal property– Step families– Substance abuse– Spendthrifts– Significant distributions– Unequal distributions– Depletion of principal– Liquidity needs– Account pledged as collateral for bank loan– Difficulties with prior trustee

T.A.R.P.(the kind you CAN control)

• Track and Trend– Track by officer, market, business unit, product line, amount of

exposure, how surfaced– Trend over each of these criteria

• Analyze for pervasiveness and root cause

• Report to management and independent compliance oversight committees

• Program changes to mitigate risk including enhancements to systems, policies & procedures, controls, and training.

Identify the ROOT CAUSEof the complaint, loss, or claim.

• Customer service

• Investment performance

• Appropriate investment objective

and adherence thereto

• Poor administration

• Documentation

• Communication

Sample Forms

Is it

Systemic?Pervasive or

Potentially pervasive?Isolated?

• Fix System• Revise

Procedures/Process

Analyze the problem.

• Look for system defects

• Policy, procedure & process gaps

• Widespread unfamiliarity with policies

• Flagrant disregard of policies

• No perceived issue• Individual training• Supervision• Conscious business

risk

Jump into action, before history repeats itself.

• Immediate claims-best controlled with prompt attention.

• Extrapolate globally to:-Fix systems-Address control gaps-Enhance policies and procedures-Train-Sensitize management to business risks-Address identified pockets of personnel and supervisory issues.

When all else fails

• Follow these common sense axioms from

“Poor Joan’s Almanac.”

(With apologies to Ben Franklin.)

“Mean what you say, and say what you mean.”

• Make sure you are following the terms of the governing document, including all amendments, codicils, and court orders.

• Make sure you follow your policies and procedures. Don’t establish unrealistic standards.

• Follow through on correspondence. Under promise, over deliver.

“Document, Document, Document.”

If it’s not in writing, it doesn’t exist.

“Keep your friends close, and your clients even closer.”

• Know your customer.

• Know the family dynamics.

• Be alert to changes in habits.

• Over communicate.

• Verify client authorizations.

“Two heads are better than one.”

• Dual control over– Security of physical assets, medallion stamps,

checks.– Secondary approval of address and statement

changes.– Oversight of transaction processing

• Trading errors• Wire instructions• Reconciliations

“Work smarter, not harder.”

Complaints,Losses & Litigation

ImplementMitigatingStrategies

•Policies•Controls•Training

Prevent

Report, TrackTrend & Analyze

for Themes

Predict Risk &Establish KRI’s

Questionsand

Comments

Thank You!