Tilden Moschetti: What does it mean to have a fiduciary duty
for a syndicator or a fund manager? It is a principal thing
that should be ingrained in your blood. It should be a visceral
feeling that you have, that you've got this fiduciary duty
and you treat your investors appropriately. Now, what do I
mean by this, let's talk about it in this video.
A fiduciary duty is simply putting your the best interest
of your investors before your own. Now that sounds very easy
and lofty, but what does it exactly mean? There are five
principles of fiduciary duty, the duty of loyalty, duty of
care, duty of confidentiality, and the duty of impartiality,
and we'll go through each of those. But basically, think
about your fiduciary duty this way. This is the way I like to
think of it, your investors are giving you an enormous amount of
money. They're giving you 50,000 100,000
sometimes over a million dollars of their money. That's an
enormous amount of trust that they're placing with you. And we
have to take that extremely seriously, and that's why, when
I say you have got to feel it, you've got to really feel that
level of trust. Because, man, there are putting a lot of trust
in you, and you've better earn it. So it's not and by earn it,
I don't mean you have to hit the targets or else. I mean you just
got to do your very best for them every single time and in
every decision you make, the duty of loyalty is the first
main principle. It's the duty to act in the best interest of the
investors, avoid conflicts of interest and prioritizing the
goals of the syndication over your personal gain. So by this,
what we really mean is, I like to think of it as avoiding
conflicts of interest. Now, there may be, there always are
conflicts of interest in a syndication, but like taking a
kickback or things like that, is never in your best interest of
your investors. It's okay to do that, but I would disclose it up
front, like, for example, I'm going to be paid, you know, by
10% of the development fee by the developer who's going to be
hiring us for this, something like that. Whatever it is, it's
got to be disclosed and made super, super clear, because we
don't want even the appearance of a breach of the duty of
loyalty. If you're not going to be 100% you got to just tell
them, tell them that you're doing it.
So that's the number one thing, is, have this duty of loyalty.
The second key principle of fiduciary duties is the duty of
care. Remember, they've given you all this money. How would
you want your money manager or your syndicator you've given all
of your money to to treat it? You would want them to do every
single thing that they can in order to take good care, nurture
it, Shepherd it, steward it, whatever words you like, in
order to make sure that you get what kind of return is possible.
So really it's making all those good decisions, being thorough,
conducting good due diligence, really just working hard and
being truly, truly professional about every single element of
your syndication or your fund. The third key principle of
fiduciary duty is a duty of disclosure. It's telling your
investors about everything that they need to know. If it's
material, they need to know it. They don't need to know that the
third blade of grass finally came, grew in. They don't need
to know that level of detail, but they may need to know that,
hey, we had some vandalism that took place on the property, and
it wiped out a whole section of our thing. And now we've got to
go find a new gardener in order to do this. Whatever that is
right, that's relevant, that's material, disclosing that,
especially disclosing before they invest right? So anything
that they might be interested in, conflicts of interest,
especially that you're going to be getting kickbacks, or how you
get paid, how what your interests are in the property,
those sort of things should be disclosed. Anything that could
change a potential investor from a yes to a no, they need to know
about very, very clear, that is the duty of disclosure, the
fourth principle of fiduciary duty. And I take this one very
seriously, and I'm probably different than a lot of other
syndication attorneys as it comes to this, is the duty of
confidentiality. Your investors are trusting you with a lot of
money. I've done quite.
Few syndications for myself. I continue to do syndications, and
I have investors in my roster who have invested in my
projects, who are well known people, right? So they are
people who are sometimes household names or people that
you probably have heard of as well. It is paramount that their
their confidentiality is maintained. They don't want
everybody knowing about well, we this person invested in this
thing and this person invested in that thing. It's not relevant
to everybody else. It's relevant to them, to their investment
decision, maybe to their wealth advisor, whatever. But it's not
relevant to every other investor. I make sure that we
have this discussion when I'm putting together a PPM and an
operating agreement, because I think that duty of
confidentiality is very important. I know as a as an
investor myself, I don't want my how the amount of money that
I've invested, or even the fact that I've invested in a certain
project, to be known unless I really make it clear that I want
it to be known, which is probably never the case. So that
duty of confidentiality is one of the key
fiduciary duties, and it should be a part of your syndication or
fund as well. The last fiduciary duty is the duty of
impartiality. Now this actually comes up a fair amount so, and
where it comes up most often is in redemptions. So let's say
you've got a fund that has a portfolio of $20 million and you
have decided, okay, we're going to make available $2 million
that for redemption so people can get their cash out. Because
we're shrink, starting to bring down the portfolio size.
You have a choice to make, and how you can apportion that, that
redemption availability, out to your investors? You could just
go to your favorite investor, but would that be fair to all
the other investors? No, it would not be. We have to be very
careful to not favor other investors, and not by dollar
amount either. So it doesn't matter whether the you have
somebody who invested $50,000
and a million dollars, you need to treat them fairly, but you
treat them fairly in proportion to each other. So you may allow
a redemption for both those investors, but it has to be in
proportion to their investment. So that way it is truly
important, impartial on $1 for dollar basis, not on a per
investor per investor basis. That's the way I think is most
fair. It's the way nearly everybody wants to put it in
their syndication documents as well.
We have to favor things very, very fairly and really think
about what is the fairest way to do it for all of those investors
at the same time. My name is Tilden Moschetti. I'm a
syndication attorney with the Moschetti syndication Law Group.
We help invest syndicators and fund managers just like
yourself, in order to be compliant with all of the SEC
rules and state rules, and at the same time, we help you
through this kind of decision making on how to be the best
fiduciary you can be, because it not isn't not just good business
and lawful, but it also makes your investors happy, Which
means they stay with you and keep investing with you. So it's
a good thing to be doing if we can help you with your
syndication or your fun, give us a call, set up an appointment,
and let's talk about what you're working on.
You.