Trust Legislative UpdateTrust Legislative Update

Sally MillerSally MillerABAABA

smiller@aba.comsmiller@aba.com

Legislative IssuesLegislative Issues

Estate & GiftEstate & GiftSavings ProposalsSavings ProposalsCharitable GivingCharitable GivingBasis ReportingBasis Reporting

Legislative Issues (continued)Legislative Issues (continued)

Global CompetitivenessGlobal CompetitivenessHedge FundsHedge Funds

Estate & GiftEstate & Gift

Phase-out with complete repeal in 2010Phase-out with complete repeal in 20102011 brought back at 2001 level2011 brought back at 2001 levelBudget ProposalBudget ProposalLikely OutcomeLikely Outcome

Individual Savings Options: RSA, LSAIndividual Savings Options: RSA, LSAEmployer Based Savings Account: ERSAsEmployer Based Savings Account: ERSAsHSAsHSAs

Charitable Giving from IRACharitable Giving from IRABasis Reporting Obligation on Brokers/Mutual Basis Reporting Obligation on Brokers/Mutual

Funds/Asset Managers/FiduciariesFunds/Asset Managers/Fiduciaries

Global CompetitivenessGlobal Competitiveness

Paulson ReportPaulson ReportBloomberg/SchumerBloomberg/SchumerChamberChamber

Hedge FundsHedge Funds

Congressional OversightCongressional OversightSEC ProposalSEC Proposal

AntifraudAntifraudHigh-net worth requirementHigh-net worth requirement

President’s Working GroupPresident’s Working Group

Financial Services Regulatory Financial Services Regulatory Relief ActRelief Act

Thrift Investment Adviser RegistrationThrift Investment Adviser RegistrationAttribution under 2(g)(2) of BHCAAttribution under 2(g)(2) of BHCAJoint SEC/FRB RulemakingJoint SEC/FRB Rulemaking

Regulation RRegulation R

Trust and Fiduciary ExceptionTrust and Fiduciary ExceptionChiefly CompensatedChiefly CompensatedRelationship – Total = 50%Relationship – Total = 50%Account-by-accountAccount-by-account

Bank-Wide ExemptionBank-Wide Exemption

Relationship – Total = 70%Relationship – Total = 70%

Relationship CompensationRelationship Compensation

Admin FeeAdmin FeeAnnual FeeAnnual FeeAssets under management, including 12b-1, 7 Assets under management, including 12b-1, 7

dwarfs, personal service or maintenance of dwarfs, personal service or maintenance of shareholder accountsshareholder accounts

Advertising RestrictionsAdvertising Restrictions

Cannot advertise that bank provides Cannot advertise that bank provides securities brokerage services, except as part securities brokerage services, except as part of advertising trust/fiduciary servicesof advertising trust/fiduciary services

Cannot advertise securities brokerage Cannot advertise securities brokerage services provided by banks more prominently services provided by banks more prominently than other servicesthan other services

Advertising restrictions do not apply to sales Advertising restrictions do not apply to sales literatureliterature

Adoption/Compliance DateAdoption/Compliance Date

Adoption – anticipated summer of 2007Adoption – anticipated summer of 200711stst fiscal year commencing after 6/30/08 fiscal year commencing after 6/30/08 Impact on chiefly compensated calculation: 2 Impact on chiefly compensated calculation: 2

year calculationyear calculation

ExemptionExemption

Short-term accounts – opened for less than 3 Short-term accounts – opened for less than 3 months during the yearmonths during the year

Accounts acquired as part of M&A transaction Accounts acquired as part of M&A transaction for 12 monthsfor 12 months

Transferred accounts to b/d within 3 months Transferred accounts to b/d within 3 months of the end of the yearof the end of the year

Certain de minimus accountsCertain de minimus accounts

Issues IdentifiedIssues Identified

Escrow, paying & disbursement accounts Escrow, paying & disbursement accounts where bank exercises investment discretionwhere bank exercises investment discretion

Bankwide/Holding Company: flexibilityBankwide/Holding Company: flexibility

Fees paid by mutual fund, not investment Fees paid by mutual fund, not investment adviser, transfer agent, or distributoradviser, transfer agent, or distributor

Settlement FeesSettlement FeesSecurities LendingSecurities LendingPerformance BasedPerformance Based

Custody ServicesCustody Services

Order taking permittedOrder taking permittedEmployee benefit, IRA & similar accountsEmployee benefit, IRA & similar accountsNon-fiduciary administrators and record-keepersNon-fiduciary administrators and record-keepers

Advertising Restrictions Include:Advertising Restrictions Include:

Not advertising that custody accounts are a Not advertising that custody accounts are a substitute for a brokerage account.substitute for a brokerage account.

More prominent limitation similar to trust also More prominent limitation similar to trust also applies to sales literature for IRAs and similar applies to sales literature for IRAs and similar accounts.accounts.

Order Taking PermittedOrder Taking Permitted

Other custody accounts as an Other custody accounts as an accommodationaccommodation

RestrictionsRestrictionsEmployee compensationEmployee compensationBank feesBank feesAdvertisementsAdvertisementsInvestment advice and recommendationsInvestment advice and recommendations

Order-TakingOrder-Taking

Not permitted if bank functioning in a trust or Not permitted if bank functioning in a trust or fiduciary capacityfiduciary capacity

Broker-dealer execution requirementBroker-dealer execution requirement

Securities LendingSecurities Lending

Only if functioning as an agent/does not apply Only if functioning as an agent/does not apply if custodial securities lending agentif custodial securities lending agent

Qualified investor and employee benefits plan Qualified investor and employee benefits plan with $25m in investmentswith $25m in investments

Broker-Dealer ExecutionBroker-Dealer Execution

Statutory requirement waived for mutual funds Statutory requirement waived for mutual funds if order directed to: if order directed to: NSCC Mutual Fund Service, orNSCC Mutual Fund Service, orTransfer AgentTransfer Agent

MMMF ExemptionMMMF Exemption

No-loadNo-loadNon no-loadNon no-load

Provide prospectusProvide prospectusCan’t characterize as no-loadCan’t characterize as no-load

Impact on bank-wide fiduciary exemptionImpact on bank-wide fiduciary exemption

Referral FeesReferral Fees

2x base hourly rate2x base hourly rate2x average min-max hourly wage for job 2x average min-max hourly wage for job

familyfamily1/1000 average min-max annual base salary 1/1000 average min-max annual base salary

for job familyfor job family$25$25No pointsNo points

Institutional ReferralsInstitutional Referrals

Can pay larger fees ifCan pay larger fees ifHNW customerHNW customerInstitutionalInstitutional

HNWHNW

Individually or jointly, with spouse, has at least Individually or jointly, with spouse, has at least $5 million in net worth excluding primary $5 million in net worth excluding primary residence and associated liabilitiesresidence and associated liabilities

InstitutionalInstitutional

$10m in investments$10m in investments$40m in assets or$40m in assets or$25m in assets if referral for investment $25m in assets if referral for investment

banking servicesbanking services

Bonus PlansBonus Plans

Profitability ofProfitability ofBank or BHCBank or BHCAny bank affiliate (other than b-d) or operating Any bank affiliate (other than b-d) or operating

unitsunitsB-D ifB-D if

Profitability only one of multiple factors/variables usedProfitability only one of multiple factors/variables used Significant factors/variables that are not related to Significant factors/variables that are not related to

profitability of b-dprofitability of b-d

Bonus PlansBonus Plans

DiscretionaryDiscretionaryMultiple factors/variablesMultiple factors/variables

Factors/variables include significant Factors/variables include significant factors/variables not related to security factors/variables not related to security transactionstransactions

Referral not a factorReferral not a factorBonus not determined by reference to others Bonus not determined by reference to others

referralsreferrals

Unresolved IssuesUnresolved Issues

Dual EmployeeDual EmployeeLicensingLicensingSupervisionSupervision

Bank Recordkeeping RulesBank Recordkeeping Rules

CONCLUSIONCONCLUSION