Trustees: Time to take stock

As we all sit in our homes looking at the news of stock markets falling in value and yo-yoing around, it is all too easy to bury one’s head in the sand and wait for matters to improve. However, that improvement may be a long time down the track and the trustees owe a duty of care to their beneficiaries to look after the trusts investments and assets to best support the interests of those who are supposed to benefit from them.

At times of stock market volatility, as we are currently seeing owing to the COVID-19 global pandemic, it is important for trustees to review their investments in the light of the trust’s and the beneficiaries’ objectives and to make a record of that review and any decisions made.

Issues to consider and discuss with your appointed investment managers that stem from global events such as we are seeing now include:

• Active management – It is important to stay in touch with your appointed asset manager to ensure that, in these days of overwhelm and fast-paced change, they are succeeding in actively managing the portfolio in line with the trustees’ investment criteria. Whilst one should allow the investment advisor time to do their job, being in regular contact shows that the trustees are taking an active interest in what is happening. Records of discussions should be made and retained.
• Levels of income – Will there be a drop in income in the short to medium term that will have a material effect on any income beneficiaries’ day to day standard of living, or prevent the trust from meeting other obligations? You should discuss with your manager what their expectations are for the income in the short to medium term. It is always best to try and manage the expectations of a beneficiary rather than surprise them with bad news late in the day.
• Looking ahead – If there are known capital requirements in the near to medium future, such as funds being required for a beneficiary to purchase a property, these should be conveyed to the investment manager as soon as they are known so that they are aware what funds will need to be drawn from the portfolio and manage the funds accordingly. This can be more challenging when markets are fluctuating on a daily basis.
• Timing – Where investment decisions are taken, or capital requirements are known, it is important that, in times like now, these are implemented quickly. In recent weeks we have seen market indexes rise and fall daily by figures as high as 10%.
• It’s not all doom and gloom – It is also worth considering, where trustees have surplus cash to requirements, that the recent falls in stock market valuations might present an opportunity to invest. With interest rates so low, retention of cash will not provide much in the way of income or capital growth. Obviously, appropriate advice should be taken when undertaking any investment.

If you would like to know more, please get in touch with your usual BDB Pitmans contact, or Hamish Frost.