A thematic review conducted by the Guernsey Financial Services Commission showed that fewer than half of trust firms were setting basic objectives for their trusts. This is perhaps not a surprise as documenting the requirements of a Trust, and organising a ‘beauty parade’ of investment managers, has traditionally been a highly manual and time-consuming task.
Trustees, however, have a fiduciary duty to protect the value of a trust fund. In Jersey, this duty goes one step further, and is more onerous, because it is described in law as ‘protect and enhance’. This means that when investments fail, or suffer from lacklustre performance, trustees are at risk of legal action from beneficiaries for failing to protect and enhance. To ensure the trust assets grow over time, or at least keep pace with inflation, trustees, therefore, need to invest the money and to do that they most commonly use a discretionary investment manager. The problem that a trustee then has, is which manager do they appoint, as there are of course many investment managers, and they all tell the trustees that they will do a great job.
Recognising these challenges MPI, the STEP Member Service has released a new tool on their online platform. The platform automates much of these tedious manual tasks and is designed to save time and reduce regulatory risk for trustees.
MPI’s Managing Director, James Hoare said: ‘Through discussions with our users we understood that the task of organising and running investment manager ‘beauty parades’ was a barrier to appointing investment managers. In large part, this is due to the significant amount of administrative time required. We are pleased to have been able to automate this process so the investment manager selection process can be effectively and comprehensively arranged through the use of technology rather than time’. The MPI ‘beauty parade’ process enables a trustee to objectively select potential investment managers and ensure that a robust paper trail is provided for the entities file. This can further support them in considering and recording the specific requirements of a Trust in an investment policy statement which not only helps meet the requirements of the regulator but also acts as the cornerstone of a successful investment partnership between the trustee and their investment manager.
The MPI platform was originally built in 2012 to provide trustees with information about the performance of discretionary managed investment portfolios. Data from over 130,000 portfolios and from over 50 investment management firms is collated which is then aggregated by currency and risk level to create their peer group indices. The service has always been offered as a free STEP Member Service. In recent years they have evolved the services MPI provides with specific tools for trustees, as well as the information provided through the indices. As James Hoare explains, ‘The first tool that was launched was the investment policy statement drafting tool. We launched this as it was apparent that trustees were struggling with drafting effective investment policy statements despite them being a requirement of the Trustee Act 2000 in the UK’.
‘The MPI platform is a free STEP Member Service which significantly reduces both administration time and risk for Trusts. Every time there is a need to select a discretionary investment manager for a trust fund the platform enables trustees to create ‘beauty parades’ in a very timely and effective manner, helping ensure there is a demonstrable paper trail that such a selection process was undertaken. This acts as an insurance policy should the trustees be accused of negligence in the future.’
The platform is currently used by over 350 trust and advice firms and is completely free to use for STEP members (and other approved advisors) by signing up below.