ABSTRACT
203When a trust instrument is silent about a trustee’s investment obligations, the Trustee Act 2000 creates a statutory code to supply those obligations. It replaced a very narrow statutory code which had existed previously. The Trustee Act 2000 empowers the trustees to invest as though they were the absolute owners of the trust fund (i.e. they are not to be considered to be constrained in their investment decisions). To balance out this principle, however, the trustees owe a statutory duty of care to the beneficiaries. Significantly, the trustees’ duty is to act ‘reasonably’, which is a change from the ancient case law principle of acting ‘prudently’. The trustees must balance several statutory obligations when making investment decisions: the duty to act with skill and care, the duty to act reasonably, the duty to take proper advice, and the duty to observe the two ‘standard investment criteria’ that the trustees must invest ‘suitably’ and that they must diversify the trust’s investments.
The trustee’s general duties of investment under the case law can be summarised in the following principles: to act prudently; to act fairly between beneficiaries; to achieve the best financial return for the beneficiaries. The best interests of the beneficiaries are generally taken to be their financial interests. Recent cases have held that the trustees should observe ‘portfolio investment theory’ in the form of diversifying their risks. Importantly, it has emerged that the trustees will be unlikely to be held liable for breach of trust if their investment decisions were in line with the investment decisions being taken by the trustees of similar trusts in the marketplace.
Regulation by the Financial Conduct Authority and money-laundering regulation are important in relation to trustees who are investing in a professional capacity. The trustees of ordinary private trusts will generally avoid this form of statutory oversight. Other forms of trustees of investment funds – such as the trustees of pension funds and the trustees of unit trusts – are subject to their own statutory regulatory codes.
