Suitability and diversification.

These are the twin pillars for the investment advice we provide to our clients. Did you know, however, that for many trusts this is a legal requirement for investing?

Forgive me for a bit of history. Before the year 2000, in England and Wales, trusts were often bound by old legislation telling trustees what the initial split between Fixed Interest holdings and Equities (shares) was to be. That sentenced many trusts to an unsuitable investment policy with sometimes very disappointing outcomes. From 2000 many trustees have full discretion although usually subject to the overall investment portfolio being both suitable and diversified. This is known as the standard investment criteria.

As with many other areas of life, with increased choice comes greater responsibility. Again, there is a legal side to this, as trustees must act in the best interests of the intended beneficiaries with a duty of care. At all times.

One of my earliest experiences of trustee work, as part of a team within a leading financial institution in the City, was a long running court case. Duty of care was a central theme amongst the disgruntled beneficiaries and particularly whether regular reviews had taken place. The central issue being whether the investment management of the trust, over many years, had been in the best interests of beneficiaries. As one class of beneficiaries wanted a good income and other capital growth this was a challenge. Balancing the, possibly conflicting, interests of various beneficiaries is one of the challenges still facing many trustees today.

What does this mean for trustees now?

Obtaining and considering investment advice has never been more important for trustees. It is also a legal requirement unless the trustees consider it to be ‘unnecessary or inappropriate.’ (Trustee Act 2000, Section 5). A prudent trustee would usually seek advice, unless the funds are expected to be distributed in the short term, or the value does not justify doing so.

So what does good look like for trust investment?

From our perspective there are four key stages to consider:

1. Understanding the purpose of the trust and what makes it tick.
For example, what type of trust is it and which tax regime does it fall into? When is money likely to be required and how much? Does the trust deed include any specific investment restrictions?

2. Ascertain both the attitude to risk and capacity for loss for the trust.
These are key aspects for developing a suitable investment strategy. As many trusts have multiple beneficiaries and objectives we often find this more complex than for personal investment. The attitude to risk and objectives of a trustee personally may be very different to those relevant to the trust.

3. Devising an investment strategy that is both suitable and diversified.
This includes selecting the most suitable investment style and identifying the most effective tax wrapper to hold the investments. Nowadays there is a much wider range of assets than simply Fixed Interest and Equities. A well balanced strategy seeks to optimise risk adjusted returns from a range of asset classes.

4. Regular reviews, to evidence continuing suitability and diversification, while reflecting any changes in the trust’s requirements over time.
These reviews should include both financial planning and investment strategy. It is, in any case, good practice for trustees to hold periodic meetings and to evidence doing so. All of this helps to demonstrate a commitment to fulfilling both the duties and responsibilities of being a trustee.

At Punter Southall Wealth, we have many years’ experience of advising trustees and managing trust portfolios with in-depth expertise of this specialist area. We work closely with trustees legal and tax advisers to develop, implement and review, suitable long-term investment strategies.

Trusts remain a valuable way of transferring assets between generations and to charities. A suitable and diversified investment strategy can make all the difference.

Andrew Chastney, Senior Paraplanner



This communication is prepared for general circulation and is intended to provide information only. It is not intended to be construed as a solicitation for the sale of any particular investment or as investment advice and does not have regard to the specific investment objectives, financial situation, and particular needs of any person to whom it is presented. Tax treatment will depend upon individual circumstances and may be subject to change in the future.

Please also note that the value of investments, and / or the income from them, can fall as well as rise so you could get back less than you invested. The past performance of an investment should not be relied upon as a guide to its future performance. Unless indicated otherwise, comment and opinion in this publication is based on HMRC’s tax regulations for 2020/21 tax year and future proposals.

The Trustee Act 2000 refers to England and Wales only. Similar legislation was passed in Scotland in 2005.

This communication has been approved and issued by Punter Southall Wealth.

©2020 Punter Southall Wealth is a trading name of Punter Southall Wealth Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 5374633. FCA Registration No. 478840. Registered office: 11 Strand, London WC2N 5HR. A Punter Southall Company.


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