Top three tips for... investing in trusts

Posted on Jul 18, 2019

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In our new series of blogs, members of our team discuss their ‘top three tips’. Here Graham Hubbard reveals his top three tips for providing suitable investment advice to Trustees:

Tip one: Understand the terms of the trust deed

Here at The Goodman Partnership, our process begins by firstly reviewing the type of trust that we have been asked to advise on, considering things like the beneficiaries’ rights and the powers of the Trustees.  We will also want to meet with the Trustees to establish the parameters for our advice, determining what level of investment risk might be suitable to meet the longer term investment goals. 

It’s through this process that we can then consider a suitable recommendation and investment strategy considering the, sometimes competing, requirements in the round.

After implementation, we will keep you informed of progress and, of course, work with the Trustees who have a legal requirement to regularly review the trust and the suitability of its assets. Ongoing advice and reviews are therefore an integral part of our Trust Investment Service. 

Tip two: Consider the suitability of the investment

Trustees have to take into account factors that may affect investment performance, such as tax and charges. We help simplify this as, in addition to advising on a suitable investment strategy, we’ll also consider the tax implications relating to an investment we arrange both now and, in the future, when beneficial interests are realised. 

For example, discretionary trusts are potentially liable to the highest rates of tax and, without proper advice, it can be easy to pay more tax than is necessary. Therefore, it’s important when setting up the trust that the tax efficiency of the tax wrapper being proposed is considered alongside the incidence of when tax charges might arise, for example ten year periodic and exit charges. 

Tip three: Personal attitudes are not relevant

Of course, as a Trustee, you are making financial decisions on behalf of somebody else and you must be able to explain and justify those decisions. Everything a Trustee does must be done in the beneficiary’s best interests, so it is important to remember that personal attitudes when it comes to investing are not relevant. Often the Trustee investment powers are expressly stated in the trust deed. 

In addition, Trustees have a number of responsibilities under Common Law and these are: 

  • To act in the best interests of all beneficiaries at all times.
  • Not to allow their own political, social or moral views to influence their judgement as to what is in the best interests of the beneficiaries.
  • To take into account the wishes of the person who established the trust (the settlor).
  • To ensure fairness between beneficiaries.
  • Not to hoard cash, unless it is required for use by a beneficiary in the very near future.
  • To take account of factors that may affect investment performance, such as tax and charges.

Trustees must remember too that Section 5 of the Trustee Act 2000 requires when investing to consider proper advice taking account of standard investment criteria. As a Chartered Firm with whole of market research and STEP qualified advisers, we are well placed to help trustees navigate a safe and compliant path.

If you’ve been asked to act as a Trustee for the first time, it can feel rather daunting. You’re not only expected to make financial decisions for somebody else but you may be asked to explain and justify those decisions. However, we are here to help you; please do call us on tel: 01892 500600 if you’ve got any questions or click here.

Graham Hubbard joined The Goodman Partnership as an adviser in 2016 and provides advice in the areas of wealth management for private clients and Trustees and retirement planning, both pre- and post-retirement.

His role involves working with individuals, families and Trustees putting in place co-ordinated financial plans which are designed around them to help achieve their financial goals – whether that’s income in retirement, building capital or achieving long-term capital growth.

Graham has over 25 years’ experience in the pension and investment industry, having worked for Sun Life, AEGON and Standard Life, before becoming an independent financial planner.

He is a Chartered Financial Planner a Fellow of both the Personal Finance Society and the Chartered Institute for Securities and Investment, the two pre-eminent professional bodies for advisers.

 

 

 

 


Goodman Chartered Financial Planners is a trading name of Fairstone Financial Management Ltd. Fairstone Financial Management Ltd., is authorised and regulated by the Financial Conduct Authority – FRN: 475973 Registered in England and Wales no: 05574120. Part of the Fairstone Group. Where you have a complaint or dispute with us and we are unable to resolve this to your satisfaction then we are obliged to offer you the Financial Ombudsman Service to help resolve this. Please see the following link for further details: www.financial-ombudsman.org.uk.