BILL ANALYSIS �
AB 1859
Page 1
Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1859 (Maienschein) - As Amended: April 21, 2014
Policy Committee: Banking &
FinanceVote: 12-0
Business, Professions & Consumer Protection14-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill authorizes the creation of licensed professional
fiduciary corporations (LPFC). In summary, this bill:
1)Authorizes an LPFC to render professional services in
conformance with the Moscone-Knox Professional Corporation Act
(the Act) and requires an LPFC to observe statutes and
regulations to the same extent as an licensed professional
fiduciary (LPF).
2)Prohibits a LPFC from committing or omitting any act that
constitutes unprofessional conduct under any statute or
regulation, and declares that any LPF who causes the LPFC to
violate the Act or any regulations adopted thereunder, or
assists or abets in such violation, is guilty of
unprofessional conduct.
3)Requires each director, shareholder, and officer of a LPFC to
be an LPF, and prohibits any shareholder who is disqualified
as an LPF to receive income from an LPFC that is attributable
to the LPF's professional services rendered while
disqualified.
4)Requires an LPFC to maintain liability insurance of at least
$1 million and contain the words "professional fiduciary" and
an indication of its corporate existence in its name.
5)Authorizes an LPFC to act as a guardian, conservator, personal
representative, or trustee, and allows each shareholder,
officer, director, or employee of the LPFC who is an LPF to
AB 1859
Page 2
individually exercise the powers and duties of the guardian,
conservator, personal representative, or trustee; states that
the LPFC will maintain liability for those actions but does
not limit the ability of the Professional Fiduciaries Bureau's
(PFB) ability to take disciplinary action against an LPF.
FISCAL EFFECT
Minor and absorbable costs to PFB to enforce the provisions of
this bill.
COMMENTS
1) Purpose. This bill allows multiple LPFs to organize as an
LPFC in order to aggregate discrete specialties within a
single firm while allowing the corporate veil to protect LPFs
from personal liability. According to the author and sponsor,
the Professional Fiduciary Association of California,
authorizing LPFs to organize as professional corporations will
enable fiduciaries to better serve the needs of clients,
particularly clients who require continuity of fiduciary care
over extended periods of time.
The sponsor claims the professional corporation structure
allows a fiduciary to serve a client with multiple skill sets
and specialties. For example, one LPF may specialize in
medical needs while another may specialize in financial and
tax needs and another in property management. Together, the
LPFC can meet all the disparate fiduciary needs of the client.
2) Current Regulation of Professional Fiduciaries. The
Professional Fiduciaries Act (SB 1550 (Figueroa), Chapter 491,
Statutes of 2006) established a regime to license and regulate
non-family member professional fiduciaries, and the PFB
currently licenses 638 LPFs. In order to be licensed as a
LPF, applicants must be 21 years old, pass an examination
including state and federal components, have sufficient
education and/or experience, and pass a background check.
LPFs are also required to complete 30 hours of approved
pre-licensure education and 15 hours of annual continuing
education as well as comply with reporting requirements and
the Professional Fiduciaries Code of Ethics.
Licensed attorneys are not required to obtain a fiduciary
license because attorneys may already provide the full scope
AB 1859
Page 3
of fiduciary duties. Certified public accountants and
enrolled agents are also exempt so long as they only provide
services within their scope of practice.
3) Professional Corporations. Existing law authorizes certain
professions to organize as corporations to offer specific
professional services, such optometry or medical services.
According to the sponsors, organizing as a corporation will
permit greater continuity of care for clients by providing
many LPF services under a single corporate license.
4) Limited Liability. This bill also provides personal liability
protection for individual LPFs who organize an LPFC. The
sponsors argue the limits on individual liability are
counterbalanced with a requirement that an LPFC hold a minimum
liability insurance policy of $1 million. In addition, the
bill does not prevent PFB from disciplining individual LPFs
operating within an LPFC.
5) Staff Comment. Given the benefits of limited liability
afforded to a LPFC under this bill, the author or Committee
may wish to consider whether the $1 million liability
insurance policy is sufficient in all cases, or whether the
amount of liability insurance required should be tied in some
manner to the overall size of the LPFC's membership or
business. While $1 million may be sufficient coverage with
respect to an individual client, LPFCs with many LPFs, and
therefore many more clients, may not be appropriately covered
with a $1 million policy in the case of systemic errors or
fiduciary violations.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081