Trustee investments

Written by Mark Jones on July 8, 2015.

Trustees have a duty of care under the Trustee Act 2000 to ensure that they are taking independent advice when it comes to assets they hold upon trust for beneficiaries.   When advising on and arranging investments for private clients, financial advisers are required by their regulator to take into account the client’s attitude to risk and capacity for risk. When it comes to advising on and arranging trustee investments however, trustees’ personal attitudes and capacity for risk are irrelevant, as indeed are those of the beneficiaries (who in any event are not the advisers’ clients). The trustees are the clients and they are custodians of the interests of the beneficiaries.

Trustee investments

Trustees are invested with powers of investment by the Trustee Act 2000 and are required by s5 of the Act to take advice about the way in which these powers should be exercised. When considering such advice they are required to have regard to the standard investment criteria laid down by s4(3) of the Act, which are as follows:

(a) the suitability to the trust of investments of the same kind as any particular investment proposed to be made or retained and of that particular investment as an investment of that kind, and 

(b) the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.

So the role of the financial adviser is to recommend investments or portfolios of investments which will enable the trustees to satisfy the criteria of suitability and diversification; and clearly, risk is a major component of both of these criteria. However, it is important to recognise that risk is a relative concept, and no investments are “safe” in the sense of providing protection against the potential loss of value.

Consequently, the questions which might suitably be asked of trustees, in place of the risk analysis for private clients, are as follows:

1. What is the maximum possible duration of the trust?

2. Should priority be given to either income or capital growth?

3. Is any absolute level of income required, and if so for how long?

4. Should the interests of any individual beneficiary or class of beneficiaries be regarded as having priority over those of other beneficiaries?

5. Are there any identified points in the future when there might be a requirement to withdraw capital, and if so, how much?

6. Are different classes of beneficiary affected by different tax considerations?

7. Could the number of beneficiaries increase by reason of new births?

8. Should investments which include financial derivatives be excluded?

9. Should ethical investments be considered?

10. Overall, should the profile of the portfolio be:

Tags: Attitude to risk, Investing, investments, Trustees, Trustees Act 2000