Technical article
If the Bank Follows the Adviser's Orders and the Money Is Lost, Who Pays?
The deed names a bank as trustee and a family friend as investment adviser.
Imagine a family trust of US$5 million, as an example. The deed names a bank as trustee and a family friend as investment adviser. The bank must follow the adviser. The adviser buys a holding that falls by half. The children ask the obvious question. Who pays?
The answer depends on the state and on one word in the deed: fiduciary. A fiduciary owes a duty to put the trust's interest first. The question is who owes it for the investing.
What each state says
| State | Trustee who follows the adviser | Adviser's duty |
|---|---|---|
| South Dakota | Not liable for the loss, even if the adviser broke its own duties or went beyond its authority. Freed from investment and suitability reviews on assets the adviser controls. | A fiduciary by default. A co-adviser can be made a non-fiduciary if at least one fiduciary adviser serves. |
| Nevada | Not liable for loss from complying with a direction, whether the direction is to act or not act. No review duty on the adviser's investments. | A fiduciary unless the deed says otherwise. |
| Alaska | If the deed requires the trustee to follow the adviser, not liable to a beneficiary for doing so, whatever information the trustee had. | The adviser carries the liability as a fiduciary and has the exclusive duty to account and defend. An adviser who only advises is not a fiduciary by default. |
| Delaware | Not liable for loss from following the adviser, except for the trustee's own willful misconduct. No duty to monitor. Where an adviser's consent is withheld, liable only for willful misconduct or gross negligence. | A fiduciary by default, but the deed can make the adviser a non-fiduciary. |
| Wyoming | An "excluded fiduciary", not liable for loss from the adviser's or protector's action unless the deed says otherwise. | The adviser becomes the fiduciary in place of the excluded fiduciary. |
| Tennessee and New Hampshire | Both have statutes that free an excluded fiduciary from liability for what an adviser or protector does. Tennessee adds: even if that person breaches duties. | In New Hampshire, advisers and protectors submit to the state's courts. |
Nevada's rule is broader than the Uniform Directed Trust Act, which keeps the trustee liable for willful misconduct. Under that uniform act, 18 states by January 2025, the person who directs the investments owes the same duty a trustee would, though the trust can soften it. Delaware and Nevada are the exceptions where the deed can make the director a non-fiduciary. Counts of states vary by source: 16 in July 2023, 17 in a 2026 article, 18 in January 2025. The dates differ.
The Wyoming text comes from an undated state document and may not match today's code.
So who pays?
In South Dakota, Nevada, Alaska and Delaware the trustee steps out of the loss. If the adviser is a fiduciary, the duty to the beneficiaries sits with the adviser. In Alaska the adviser also has the duty to account and to defend.
If the deed makes the adviser a non-fiduciary, as Delaware and Nevada allow, the duty on the adviser is lighter. The trustee is also freed. Where a loss lands then turns on the wording of the deed.
What it means for the family
Back to the example. Two people matter. The friend as adviser may owe the duty, depending on state and deed. The bank, in each of these states, is freed from reviewing what the friend buys. That is part of why a bank charges less for a directed trust. One bank schedule shows 0.50% on the first US$1 million for a directed trust against 0.65% for a delegated one, and says the bank has no duty to review or watch the adviser.
You could
You could ask the lawyer to point to the line in the deed that says whether the adviser is a fiduciary. You could ask whether the adviser carries insurance, and what happens if the adviser dies or resigns.
If you were the adviser for a parent's trust, what would you want written down for your own protection? Share it here. Someone may be sitting in that chair right now.
Figures are estimates for planning, based on public data. Date read: October 2026.
Sources
- South Dakota Legislature, statutes 55-1B-2 and 55-1B-4 (A)
- Nevada Legislature, statutes 163.5549 and 163.5551 (A)
- Alaska Legislature, statute 13.36.375 (A)
- Delaware Code Online, 12 Del. C. 3313 (A)
- Wyoming Legislature, W.S. 4-10-717 and 4-10-718, undated (A)
- Tennessee Code 35-15-1205 via FindLaw and New Hampshire RSA 564-B:12-1205 (B)
- ACTEC Foundation on the Uniform Directed Trust Act (B)
- BOK Financial Advisor Trust Services fee schedule, January 2026 (C)
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