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Fund Management

On occasion, the courts have seen fit to award a sum for management fees where it is deemed that the plaintiff will require professional advice to manage an award for future loss. In British Columbia, fund management fees have often been calculated by recourse to the recommendations of the Law Reform Commission of British Columbia (1994). This report outlined four levels of management fees which increase with the level of need and are described briefly as follows:

Level 1: An amount sufficient to purchase a single session of counselling and preparation of an investment management plan at the commencement of the management;
Level 2: An amount sufficient to cover the expenses incurred in Level 1 with additional monies being made available to for periodic review of the investment plan by an investment counsellor;
Level 3: Custodial management fees. Custodial accounts provide only safekeeping, collection and distribution of funds, and settling securities transactions. As such, custodial accounts do not involve any investment management services. In such accounts, the advice of a money manager is not provided;
Level 4: Full fund management fees. This level of award is designed to provide the plaintiff with a full range of services (a maintenance fee for record keeping and other custodial services, the commission for buying and selling the investments contained in the fund, the cost of investment and tax advice from a money manager with a view to raising the after tax return for a given risk).

Management fee schedules are included in the Law Reform Commission report and provide a straightforward method of estimating fees based on levels 2, 3 and 4 described above. However, the Law Reform Commission Tables are based on fee schedules which are now five or six years old. In addition, the tables provide a general estimate of management fees which do not take into account the particular patterns of withdrawals implicitly assumed in calculations of awards for costs of future care award, loss of future income and income tax gross-up.

Associated Economic Consultants Ltd. has developed a model which estimates fund management fees based on current published fee schedules provided by a number of prominent Canadian trust companies. The estimates are based on the exhausting fund principle, which provides for a stream of income with no residual fund at the expiration of the loss period.

The magnitude of the estimated fund management fees will depend on a number of factors such as the fee schedule quoted by the financial institution, the size of the award, the age of the plaintiff and the number of years for which management fees will be required. The model developed by Associated Economic Consultants is based on a real discount rate (net of inflation) of 3.5% per annum, the rate specified by the court as the difference between the investment rate of interest and the general level of price inflation. If funds are to be held by the Public Trustee, committee fees can also be calculated.