Investment strategies for trustees
One of the problems facing trustees is that they have a
duty of care to the beneficiaries to ensure that any trust
assets are invested appropriately. This is, of course, something
of an open ended issue since unless the trust sets out very
clearly what investment strategy is to be followed (for example,
holding a particular property and covering the running expenses)
the trustees are responsible for determining what is suitable.
This falls into two broad areas. First, what is the ideal
strategy to match the aims of the trust; secondly, how to
follow it.
Trustees may consider that their primary obligation is to
minimise risk and this could lead to a strategy of investing
in deposits and, possibly, gilts. However, this may be “safe”
but it runs the risk that the real value of assets will fall,
if the rate of return is less than the rate of inflation.
Even if inflation can be beaten, it is likely under most long-term
investment conditions that deposits will achieve a lower growth
rate than equities, property or some other asset classes.
If this is so, the trustees could find themselves being accused
of acting improperly because of the lost opportunity to achieve
better returns within the trust.
Conversely, taking on board too much risk can expose the
trust to actual loss of value and this is also likely to give
rise to accusations of maladministration.
Selecting the correct strategy is, then, something that needs
to be given careful consideration.
It is probably in the second area – implementation –
that most support is required. After all, investments are
a complex area and one where professional advice is essential
even for individuals. When looking after other peoples’
money the responsibility is even greater because decisions
made affect the potential beneficiaries, who have a legal
right to expect trustees to do their best.
There is no simple answer to what is the ideal investment
strategy but, in general, most advisers will suggest an asset
allocation strategy that provides the best chance of balancing
the vagaries of one asset class with another. The reason for
this is that few asset classes move in the same direction
at the same time; or at the same pace. For example, property
can rise in value when shares are falling, as can gilts. Similarly
within equity markets, UK shares might suffer a setback those
in the Far East are benefiting from a boom – and vice
versa.
By adopting a diverse asset class model, it is possible to
reduce volatility and actually to enhance overall performance.
Investors may miss out on the largest gains of the top performing
asset classes because only part of their money is invested
there. But for the same reason, they will miss out on the
worst downturns, since their exposure is limited.
The most important point to consider is that the vast majority
of trustees will be unqualified to make decisions of this
nature on their own and the support of professional investment
advisers has never been greater.
Where can my clients go for help?
If you would like us to review any of your clients’
investment arrangements, please contact
us. |
