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A recent High Court decision in Daniel and another v. Tee and others [2016] has provided additional guidance to trustees when considering investments, and also their relationship with their professional investment managers.
The case was brought by disgruntled beneficiaries who were unhappy with investment decisions made by the trustees during the early 2000s. They made a claim for £1.4m which they calculated had been lost by the trust fund due to the bursting of the ‘dot.com’ stockmarket bubble. The solicitor trustees were responsible for a £3.4m will trust, and investments had been made in technology, IT and telecom sector equities under advice from a firm of independent financial advisors.
The deputy judge ruled in favour of the trustees, as he did not find that there had been a fundamental misunderstanding or misapplication of their investment powers. The trustees had acted to the best of their abilities, relying on what they believed was competent professional advice. He did, however, criticise their behaviour, and those criticisms provide a practical checklist to trustees:
- Failure to devise a realistic investment strategy at the outset
- Failure to conduct periodic reviews of that strategy, with a specific focus on whether it remained appropriate to the trust’s attitude to risk
- Failure to conduct regular review of the investments made
- Failure to adopt a well balanced and diversified approach to the trust’s investments.
The deputy judge identified several breaches of trust, but did not find that those breaches had in fact caused loss to the beneficiaries.
Careful compliance with trustees’ duties as set out in the Trustee Act 2000 and the common law when exercising investment powers is key, and a good ongoing relationship with the trust’s investment manager coupled with ongoing solicitors’ advice is essential to ensure that all trustee responsibilities are being met. This ensures that the trust fund performs as well as is possible in the circumstances for the beneficiaries and protects the trustees as far as possible from potential claims by beneficiaries in case of poor performance. That said, professional trustees in particular are chosen for their knowledge, expertise and experience, and should resist the temptation to blindly follow the recommendations of their investment managers without taking a step back and comparing those recommendations to the trust’s investment policy. That agreed and considered investment policy must be reviewed regularly (ideally at an annual trustee meeting at least) and any changes should be communicated to the investment managers promptly.
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