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Investing for Trustees – Options and key things to think about

04.05.21

In a new blog series looking at finances and investment, Francis Jarman, Chartered Financial Planner at Renaissance Financial, explains what Trustees should think about when it comes to investing.

The Trust is now set up, you as a trustee have been briefed on your roles and responsibilities and whilst you are ready for this significant task in terms of commitment you are now confronted with another challenge, how are you going to invest the trust capital?

Now, before you start to think about where you are going to invest the capital there are a number of key areas to think about. These include:

  • What are the Trust’s objectives?
  • Who are the main beneficiaries?
  • Will there be a requirement for income or payment of capital on the horizon?
  • What is the size of the fund that is to be invested?
  • What degree of liquidity will be required?

Once you have the answers to these key areas, you can then begin the think about the next step, that of risk.

Risk can be tricky to establish for Trustees, because each individual Trustee may have their own view of risk and this could filter down into the agreed risk for the Trust. However, a Trustee must ‘change hats’ and think in terms not of their personal attitude to risk but what is required of the Trust.

It is best to look at risk as multi-dimensional, including the important areas of:

  • Risk tolerance
  • Return required
  • Capacity for loss
  • Time horizon
  • Liquidity
  • Inflation
  • Taxation

The Trustees can consider these key aspects of risk in order to shape the types of investments that the Trust should consider.

It is unlikely that a single investment will meet all of the needs of a Trust, for instance holding everything in cash may meet your liquidity needs, but will it create the return required to meet present and future income or capital requirements? If the beneficiary is a disabled or vulnerable person, their future needs may be complex and it is important to look at things through a ‘long term lens’, not just the short term. For example, will the capital lose real value over time if the rates are significantly below inflation?

It is likely that, to meet the Trust’s objectives, you will need to utilise different investment types within the Trust. There will certainly be a requirement for liquidity, but also for the Trust to grow to meet future income or capital requirements.

So, after a robust discussion on the Trust’s objectives, the likely needs of the beneficiaries and the various aspects of risk that all combine to shape the Trust’s investment strategy, what next?

Unless the Trustees are experienced investors they may wish to employ an adviser that is experienced in working with Trustees in creating an investment mix that will reflect the right balance to meet the agreed needs of the Trust on an ongoing basis.

This is where the Trustees will need to do their due diligence. Key questions to ask any potential advisers should include:

  • Evidence of their experience in managing Trust Investments
  • In the case of a disabled or vulnerable beneficiary, do they have experience in this area and understand the impact on things like means-tested benefits?
  • What type of service they offer, Advisory or a Discretionary Management Service?
  • How do they manage risk?
  • What are their fees and charges?
  • What has been their performance and expected returns?
  • What review service do they offer?
  • What will be the benchmark against which investments will be compared?

As a Trustee it would be vital to record all of the agreed objectives, risk, benchmarks and reviews within a specific document like an Investment Policy Statement.

This document will form the basis for both the initial and ongoing investment programme and also provides evidence of your discussions and decision-making, helping to meet your Trustee duties.

Once the Investment Policy Statement is in place, you can let the adviser make suitable investments within the agreed parameters and allow you to continue with your other Trustee duties, which in due course will include a formal review of the investments and how they are performing in line with the agreed Investment Policy Statement.

Being a Trustee is an admirable role but there’s no doubting that it comes with a time commitment. However, getting the investment strategy right takes time to set up correctly, and so doing it right first time can help the trustees save both time and worry in the future – as well as safeguarding the financial future of the beneficiary.

Looking for more advice?

Being able to help our clients is of paramount importance to us and so, Renaissance Financial was launched in 2021.

Renaissance Financial is a separate, FCA-regulated company, and the expert team there provide investment and wealth management services, including retirement and Inheritance Tax Planning.

For more information about Renaissance Financial or to arrange a consultation with one of our experts about your individual circumstances, please contact 01273 023770 or email info@renaissancefinancial.co.uk

Please note that there is a commercial arrangement between the shareholder of Renaissance Legal and Renaissance Financial, however there is no obligation on clients to use the services of Renaissance Financial.

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