UK Trustee Act 2000
Regular reviews
Trustees must regularly review their arrangements. In the case of investment management functions, they must consider whether to revise or replace the investment policy statement and they also have a duty to ensure compliance with the statement.
Investment portfolios should be regularly assessed against a suitable benchmark which reflects the investment objectives and risk levels of the trust. The usefulness of the benchmark depends on the extent to which it enables the portfolio to be tailored to the specific requirements of the trustees. Common benchmarks include the Retail Price Index, a single stock market index or a composite of indices.
Remember that quarterly performance-based judgments could result in investment decisions being made which are too short-term.
Investment Policy statement
Every trust must have a written investment policy statement – a short written statement that explains the investment objectives of the trust. This will help the investment manager to determine a strategy for generating a sufficient return to fulfill these objectives over the short, medium and long term. The statement should cover:
- The overall level of return expected and the minimum yield required
- The income and/or capital requirements
- The ability to distribute capital in place of income – i.e. total return
- The nature and timing of any liabilities
- The liquidity requirement including dates of planned expenditure
- The marketability of the investments – important if capital needs to be raised quickly
- The time horizon of the trust - less than five years or long term
- The time horizon over which performance will be assessed
- The base currency of the trust
- The residence and tax status of the trust and the beneficiaries
- Any Socially Responsible Investment (SRI) constraints
- Other tax and legal constraints
The Key Financial Reporting model applies the following format:
Statement of Investment Policy
- Aims and objectives
- Special preferences and constraints
- Risk profile and Time horizon
- Asset allocation
- Reviews and reporting
The services of Key Financial Reporting also include an objective method for analyzing and reviewing investment performance against the benchmark set by the Investment Policy statement. Thus we enable fiduciaries to demonstrate compliance under the Act.
