This topic “Fiduciary decision making in respect of assets under trust” was chosen as it represents a key responsibility of trustees and is also a common theme in complaints notified to the Fiduciary Supervision Policy and Innovations Division (“the Division”).

Such complaints often focus on the decisions made by trustees in respect of trust assets, including

1. the selection and performance of investments,
2. the management of property and
3. the valuation and disposal of private company shares.

The GFSC objectives in selecting this theme for review were:

1. To understand how trustees approach management of trust assets; and
2. To assess the type of asset management risks to which the fiduciary sector in Guernsey is most exposed.

The review highlighted both the diversity of the fiduciary sector in Guernsey and the efforts made by many fiduciaries to design effective and proportionate procedures.

The GFSC overall findings from the thematic review highlight that the sector demonstrates much good practice. However, there are clearly areas for improvement.

1. General maters
   1. the GFSC found that trustees were most comfortable with their obligations in relation to liquid or market-valued investments and how to demonstrate that they have discharged these.
   2. this said they further stated Demonstrating a cohesive strategy which embraces other asset types, such as real estate, private company shares and fine art, IS MORE CHALLENGING – although the GFSC saw examples where trustees had done so effectively.
   3. The GFSC would encourage trustees to identify the long term strategy for assets including the
      1. risk appetite,
      2. appropriate methods of periodic valuation,
      3. monitoring of the external environment,
      4. consideration of how trigger events will be managed and
      5. proactive consideration of asset disposal strategies.

2. Governance
   1. Trustees are expected to ‘manage the investment and custody of trust assets professionally and responsibly’ (1 .  Principle 4, Code of Practice – Trust Service Providers)
   2. Common sense and good intentions are not sufficient to demonstrate that a trustee has appropriately discharged their duties in relation to trust assets. Furthermore, good corporate governance dictates that comprehensive documentation should be maintained, which in turn can reduce the risk of future litigation.
   3. Structures Trustees should be able to demonstrate that, in determining their investment strategy, decisions have been well-thought through and appropriately challenged. In line with Principle 4 of the Code, trust assets must be managed professionally and responsibly in accordance with the trust deed.
   4. An attitude to risk questionnaire can be a useful tool in determining investment strategy, particularly as part of taking into account the client’s risk appetite.

3. Conflicts of Interest
   1. Where assets are invested in-house, it is important for trustees to evidence the rationale behind the decision and document why an alternative provider was not selected. Approved investment manager lists can aid the process of selecting a manager, however, a trustee must be able to demonstrate that the performance of each manager is carefully considered and reviewed on an ongoing basis.

4. Retrocessions
   1. Retrocessions, although anecdotally on the decline, remain common with around a fifth of firms reporting that they have received them.
   2. The Commission would like to remind trustees that to avoid conflicts of interest or the appearance thereof, they should advise clients of any retrocessions received in relation to their accounts in a fully transparent manner.
   3. It is also important to note that the trust deed must permit trustees to receive retrocessions otherwise they may be acting in breach of trust [Section 24 (c)(iii) Trusts (Guernsey) Law 2007]

5. Investment Oversight
   1. A significant number of fiduciaries have a formal investment review committee and the GFSC see this as good practice, however, for some this may not be appropriate or proportionate. Where there is no specific committee, it is important to maintain records of decisions and document discussions. Such records can be made available in order to avoid potential disputes.

6. Governance Triggers
   1. An important part of the trustee’s role is responding appropriately to events outside of the trustee’s control. Acting in the best interest of the trust structure in response to a trigger event is crucial. Where it is not already considered, trustees might find it beneficial to consider the position of the economic cycle and what effect it might have on the performance and future management of trust assets.

7. Charging
   1. Transparency In line with Principle 4 of the Code, in acting in the beneficiary’s best interest a trustee should agree a clear fee structure in advance of taking on an appointment. Fees charged should be fair and transparent. Trustees should agree the frequency of invoicing fee notes with clients at the earliest opportunity

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